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AIM-listed, Latin America-focussed gold miner Minera IRL (LSE:MIRL) has today announced a resource update for its Don Nicolas project in the mining-friendly Santa Cruz province of Argentina. These are shares I previously recommended on t1ps.com ( the site I founded in 2000 and edited until September this year before leaving to establish the new Nifty Fifty site) and I updated on them at 50.25p a couple of weeks ago – urging readers to buy a few. With the shares now at 56.25p, the following scribbling reviews today’s announcement from the company…
To read that detailed update of two weeks ago click here
Following step-out, extension and infill drilling, the updated resource estimate shows a 23% increase (to 468,000 ounces of gold) in higher confidence ‘Measured’ and ‘Indicated’ resources and 14% increase (to 165,000 ounces of gold) in the ‘Inferred’ resource compared to the previous resource estimate, published in 2011.
The further work also saw the merging of the three principal vein zones, a combination which the company emphasised “has important economic implications” – these including extending the mine life and meaning there is the potential for a heap leach operation aimed at treating lower grade material to materially increase low-cost gold and silver production with modest additional capital requirement (the company aims to complete a feasibility study on such heap leaching during the second half of 2013). There also looks to remain significant potential for further resource growth – with there still open-ended vein systems and new discoveries being made in what is a tenement holding of approximately 260,000 hectares with numerous precious metal occurrences.
Minera added “with the recent approval of the Don Nicolas Environmental Impact Assessment and the granting of the development permit, the company is investigating financing options”. A feasibility study on Don Nicolas, announced earlier this year, derived a post-tax Net Present Value, at an 8% discount rate and $1,500 gold, of $41.4 million – including a $55.5 million capital cost and $528 per ounce cash operating costs after silver credits. I continue to believe, given the reassurance of the company’s current production cash flows, that the financing for Don Nicolas should be raiseable and then – with two mines on the go – the funding for the flagship Ollachea project in Peru would be significantly de-risked.
As noted in my previous update, the financing requirement means some discount to Net Present Value is currently warranted but the valuation – current market cap of £85.4 million ($135.9 million) – doesn’t look particularly demanding considering the company’s current production and potential value of Don Nicolas and, particularly, Ollachea. With the senior management team here having extensive industry experience, particularly in South America, and a potential share price catalyst in the Ollachea feasibility study due pretty soon, I continue to believe that it would not be a bad move to add a few shares in Minera to a gold portfolio at current levels.
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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 (except for that free share tip) follow him on twitter at @tomwinnifrith
