Fundamental Research Report
For those of us that are cut and paste challenged
Happy trading
pkxt
Siddharth Rajeev, B.Tech,MBA
Analyst
May 15, 2009
? ?
2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Goldrea Resources Corp. (TSXV: GOR) –Underground development progressing at the Golden Rose
Mine; Initial resource estimate on the Empress Mo property –FINAL REPORT
Sector/Industry: Junior Mining www.goldrea.com
Market Data (as of May 15, 2009)
Current Price C$0.08
Fair Value C$0.20
Rating* BUY
Risk* 5 (Highly Spec)
52 Week Range C$0.04 –C$0.26
Shares O/S 59.51 mm
Market Cap C$4.76 million
Current Yield N/A
P/E N/A
P/B 0.39
YoY Return -69.2%
YoY TSXV -58.7%
*see back of report for rating and risk definitions
-
100,000
200,000
300,000
400,000
15-May-08 14-Aug-08 13-Nov-08 12-Feb-09 14-May-09
0.00
0.20
0.40
0.60
0.80
1.00
Highlights
??Underground development is progressing at the Golden Rose
Mine in Shandong Province, China. As of March 2009, the
company had stockpiled about 12,000 tonnes of gold sulphide
material from the development crosscuts. GOR intends to ship
material to the 1,850 tpd Daye mill facility once the stockpile
reaches 20,000 tonnes.
??Plans to commence diamond drilling on the Ludi joint venture
later this year.
??Plans to initiate a study to apply for permits for drilling on the
Gold Rush and Gold Chain properties located in Arizona.
??In January 2009, GOR and Molycor (TSXV: MOR) announced an
initial resource estimate for the Empress deposit near Summerland
BC. An indicated resource of 5.33 million lbs, and an inferred
resource of 4.77 million lbs at a cut-off grade of 0.02% Mo was
estimated. The project is on hold until molybdenum prices pick
up.
??At the end of Q2-2009 (end of January 2009), GOR had $3.21
million in cash. We believe the company is in a sound cash
position, and believe that current cash will be sufficient to fund
exploration and working capital for 2009.
??We have maintained our valuation at $0.20 per share.
Key Financial Data (FYE - July 31)
in C$ 2007 2008 2009 (6 mo)
Cash 9,717,875 5,509,134 3,207,892
Working Capital 9,423,916 4,468,388 2,638,687
Mineral Assets 6,617,559 9,598,855 10,781,557
Total Assets 16,836,214 16,435,706 15,187,234
LT Debt / Assets - 0.5% -
Net Loss (1,997,605) (2,298,829) (829,682)
Loss per Share (0.05) (0.04) (0.02)
Goldrea Resources Corp. (GOR) is a junior mining company ,that holds joint venture projects in Shandong Province China.
The company commenced production from its Golden Rose Mine, with mineral materials to be processed in the Daye Mill. In
addition, the company has gold and molybdenum projects in the U.S. and Canada.
Goldrea Resources (TSXV: GOR) - Update Page 2
?2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Rushan Joint
Venture
Ludi Joint
Venture
Gold Rush and
Gold Chain
Claims,
Arizona
Flap Gold
Property,
British
Columbia
As of March 2009, the company had stockpiled about 12,000 tonnes of gold sulphide
material from development crosscuts. As per the original plan, GOR intends to ship material
to the 1,850 tpd Daye mill facility once the stockpile reaches 20,000 tonnes. GOR has
negotiated an agreement with the Daye Mine to operate and develop the ore at the Golden
Rose shaft.
The company’s Chief Operating Officer and Director, Paul Blair, and Consulting Geologist,
Norm Tribe, P.Eng, are currently in China developing a program to facilitate the mining of
100 - 200 tpd from the Golden Rose shaft, and to continue the development of mineral up
and down dip from the shaft. GOR expects to disclose the plans of operation once they are
finalized.
Resource Estimate: The Rushan Joint Venture project has a 43-101 compliant indicated
resource estimate of 2.66 million tonnes at 2.03 g/t containing 0.17 million oz of gold. The
NPV of the project was calculated to be $6.77 million at a gold price of US$800/oz, and
US$12.73 million at $900/oz.
GOR plans to commence diamond drilling on the Ludi joint venture later this year. GOR has
to spend $1.4 million over 4 years to earn a 64% interest in the Joint Venture. Eight
exploration licenses have been granted for this area, which are immediately to the south and
west of the company’s existing exploration licenses along the Daye Mineral zone. The 3rd
Brigade, the company’s joint venture partner, hasdrilled and retuned 4.24 g/t gold over 9
meters from a drill hole positioned approximately 200 meters to the south of GOR’s existing
drilling.
GOR is planning to initiate a study to apply for permits for drilling on the Gold Rush and
Gold Chain properties located in Arizona.
Gold Rush Property - The 100% owned Gold Rush property consists of 18 mining claims,
and is located in Mojave County, 25 miles west–northwest of Kingman, Arizona. The
property has a historical resource estimate of over 40,000 oz of gold (1.3 million tons
grading 0.032 opt gold) delineated byWestern States (the previous operator).
Gold Rush Claims –These claims have been mapped, sampled and drilled by several
operators from 1986 to 1990. Former lease-holder, Anaconda, postulated a historical
resource of 48,000 oz (3.2 million tons of 0.482 gpt Au/ 0.015 opt Au).
Although previous drilling and trenching by Rea Gold Corp. returned up to 76.73 gpt Au
over 1 meter from diamond drilling, and 17.8 - 25.6 gpt in chip samples from the surface,
GOR feels that the drill program was negatively biased due to the nugget effect in the
mineralization. Subsequent surface trenching by the GOR/MOR Joint Venture returned up to
3.10 g/t over 6 meters. The joint venture believes that larger diameter RC drill holes will
better define the distribution of gold in the system and may partially reduce the nugget effect
in the mineralization. GOR has plans for about 6 - 10 RC drill holes on the property.
Goldrea Resources (TSXV: GOR) - Update Page 3
?2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Initial
Resource
Estimate on the
Empress Mo
Property
Financials
In January 2009, GOR and MOR announced the completion of an initial resource estimate
(calculated by N. Tribe & Associates Ltd.) for the Empress deposit near Summerland BC.
The resource estimate was based on the 2007, and spring 2008 programs, which included 19
holes drilled totaling 3,493 meters drilled in the central portion of a 730 x 360 m area of
mineralization. The resource estimates at 0.02% Mo and 0.05% Mo cut-off grades are shown
below.
Cut-off Grade 0.02% Mo 0.05% Mo
Indicated
Tonnage 3,996,155 1,703,000
Grade 0.061% 0.095%
Contained Mo (lbs) 5,330,058 3,559,240
Inferred
Tonnage 3,498,000 1,657,498
Grade 0.062% 0.095%
Contained Mo (lbs) 4,773,586 3,460,487
Mo Price US$22/lb US$10/lb
Recovery 85% 85%
Based on a cut-off grade of 0.02% Mo, N.Tribe calculated an indicated resource of 5.33
million lbs, and an inferred resource of 4.77 million lbs. No value was assigned to copper or
gold
The deposit, which is open to the northeast, southeast and at depth, consists of widespread,
molybdenum bearing sulphide mineralization hosted in Middle Jurassic quartz monzonite
porphyry associated with the Osprey Lake Batholith. N.Tribe has recommended a drilling
program to expand the limits of the known mineralization.
The company has put this project on hold at this time, and intends to resume work once
molybdenum prices pick up.
At the end of Q2-2009 (end of January 2009), the company had $3.21 million in cash.
Working capital at the end of Q2 was $2.64 million. In the first six months of FY2009, GOR
reported a net loss of $0.83 million (EPS: $0.02). We estimate the company had a burn rate
(cash spent on operating and investing activities) of $0.37 million per month in the first six
months of FY2009, compared to $0.38 million per month in FY2008 (12-month period).
The following table shows the cash and liquidity position at the end of Q2-2009.
C$ 2007 2008 2009 (6 mo)
Current Ratio 15.24 3.89 4.13
Working Capital (in $) 9,423,916 4,468,388 2,638,687
LT Debt / Assets - 0.48% 0.00%
Monthly Burn Rate incld. CFI (in $) (266,276) (378,590) (370,327)
Cash from Financing (in $) 11,737,327 129,400 (79,027)
Goldrea Resources (TSXV: GOR) - Update Page 4
?2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Valuation
Conclusion &
Rating
Stock Options and Warrants: At the end of January 2009, the company had 3.70 million
stock options (weighted average exercise price - $0.45; maturity dates between February
2010 and January 2012) and 8.80 million warrants (exercise price - $0.75; maturity date –
May 2009) outstanding. None of the options and warrants are currently ‘in-the-money’.
Conclusion: We believe the company is in a sound cash position, and believe that current
cash will be sufficient to fund exploration and working capital for 2009.
Our revised valuation on the company dropped slightly from $0.20 to $0.19 per share. A
summary of our valuation is shown below.
Valuation Summary Value VPS
Rushan Joint Venture $6,315,810 $0.11
Arizona Properties $1,320,000 $0.02
Empress Mo Property $232,943 $0.00
Book value of Other Properties $1,384,441 $0.02
Working Capital - Debt $2,209,660 $0.04
Net Fair Value $11,462,853 $0.19
Rushan Joint Venture –Our revised valuation was maintained at $0.11 per share as we did
not make any major changes in our inputs and assumptions.
Arizona Properties –Our valuation of $0.02 per share (versus $0.01 per share in our
previous report) was based on 0.044 million oz of Au (50% of the total historic resource
estimates on the properties) using a valuation metric of $30/oz (which we believe is the
average valuation for early stage Au projects at this time).
Empress Mo Property –Our valuation of $0.23 million ($0.004 per share) was based on
7.7 million lbs of Mo (we took 100% of indicated, but only 50% of inferred resources for
conservatism) using a valuation metric of $0.03/lb (which we believe is the average
valuation for early stage Mo projects at this time).
Adding the book value of the company’s other projects and current working capital to our
valuation on the above-mentioned projects, we arrived at a fair value of $0.19 per share.
Based on our revised valuation models and review of the projects since our previous
report, we reiterate our BUY rating and maintain our fair value at $0.20 per share.
Goldrea Resources (TSXV: GOR) - Update Page 5
Risks The following risks, though not exhaustive, may cause our estimates to differ from actual
results:
??The company will have to continue to rely on equity or debt financing to carry out its
exploration and development activities. The company’s ability to raise cash will depend
on its share price, and a depressed share price will limit Goldrea’s ability to finance future
initiatives without significantly diluting the interest of existing shareholders.
??A long-term drop in the price of gold will have a negative effect on the share price of the
company.
??The success of drilling, project development and resource expansion are important longterm
success factors for the company.
We continue to rate the shares Risk 5 (Highly Speculative).