Healios KK Ord Shs HLOSF

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Halo Resources: Sherridon’s Value Can Be Seen in HudBay Deal

by Karl Loomes

Sometimes, a misconception by the market can lead a strong, well managed company, to be undervalued. Worse still for an investor, a misconception can often hide facts and figures that would show the potential for value growth at the company. In late 2009, Halo Resources (TSX-V: HLO) entered into an option agreement with HudBay Minerals (TSX: HBM) allowing HudBay to earn a 67.5% joint venture interest in part of their flagship Sherridon Volcanogenic Massive Sulphide (VMS) property, and since this point the market has generally seemed to misconceive the nature of this agreement.

This option agreement was on 1.1 square kilometers of the Sherridon property. The total Sherridon property is around 200 square kilometers in size. This option agreement effectively has very minimal ‘dilution’ of future revenue and cash flows from the property, representing only a tiny portion of the total land package that Halo hold. Furthermore, rather than somehow decreasing the value of the property, if anything it should act as an indicator to the market for the potential of the property. If just one square kilometre of the property was able to raise C$6.3 million in work commitments and payouts, not even considering the value of the metal in the ground, then consider the potential multiplier for a property 200 square kilometers in size.