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AIM, Canada and Peru-listed Latin American gold miner, Minera (LSE:MIRL) has followed last week’s publication of a feasibility study on its Ollachea project in Peru with an announcement that it has awarded a contract to begin drilling extensions of the Ollachea ore bodies from underground. This is a company I followed for a couple of years on t1ps – the website I founded but departed in September – and initiated coverage post-t1ps last month, suggesting, with the shares then at 50.25p, it not a bad move to add a few shares in the company to a gold portfolio at those levels. With the share price now 54.5p, the following reviews today’s announcement…
To read my initial post-t1ps piece on Minera click here.
To read why broker Fox Davies reckons the shares could double click here
Today’s announcement comes as “good progress” is being made in a 1,200 metre exploration tunnel, with the drive scheduled to reach 1,000 metres by early January and ground conditions noted to be proving significantly better than expected, including low water in-flow. This will provide the positioning for eastern strike extension drilling and, as the tunnel continues to advance, for down-dip extension drilling. Equipment mobilisation to Ollachea is to take place this month with drilling expected to commence at the start of next month.
The news of extension drilling at Ollachea is not surprising since in the feasibility study announcement last week the company emphasised that abundant exploration potential remained – both along strike and down-dip. However, despite the study excluding this and more than one million ounces of identified ‘Inferred’ resource, it still derived a post-tax Net Present Value, at a 7% discount rate and $1,600 gold, of $258 million. At the current 54.5p share price, Minera is capitalised at £82.8 million ($133 million).
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Within the current economic climate the issue of financing something of a bugbear for prospective miners, the requirement for development capital ($177.5 million for Ollachea and $55.5 million for Don Nicolas in Argentina) here means a clear discount to Net Present Value is currently warranted. However, the present rating continues to look a very harsh assessment given that the company already has production cash flows (the Corihuarmi gold mine in Peru), another project where feasibility has been shown (Don Nicolas) and some clear exploration upside potential. As with all companies at such a stage of development there are clear risks but, for an investor prepared to accept these, I continue to believe it should prove a shrewd long-term move to add a few shares in Minera at their current levels to a gold portfolio.
Having said all of this there are more obvious buys in the gold sector. My top three other ideas right now are below
Libertarian investment writer Tom Winnifrith writes extensively for a number of US and UK financial websites. All of that material appears on his own blog, which also carries his extensive original non financial material, at TomWinnifrith.com – for alerts on all Tom’s writings follow him on twitter at @tomwinnifrith
