A Big Picture Look at the PEAStill reading through the PEA, but so far, the story is pretty clear. This is a huge gold deposit with significant copper credits although the chalcopyrite (primary copper) definitely presents some extraction issues. So far silver isn’t really a factor.
The deposit appears to be open on all sides and at depth and the grade appears to improve at depth. This is a significant discovery, but it will require a higher gold price and improved sentiment before it is sold. Since the Chinese are seeking resources for decades into the future, and they have already demonstrated a strong interest in Ecuador, despite the mining laws, we can be certain they are now watching this story.
I agree with Brendan that the company is worth much more than its current share price reflects. I think much of the share price deterioration was due to the distrust in management as they continually delayed the PEA, probably in hopes of a higher gold price. The IRR leaps to over 20 if we return to gold’s previous high.
All in all, this is generally what I have been expecting and it explains a lot of the pieces I’ve been able to put together. It seems they hoped they could sell the company based on the PEA, but more info is needed. If you believe gold is headed higher—much higher, as I do, then this is still an excellent investment, especially at these prices.
I’ve been involved in this industry since the 1980s as an investor and as an employee and I believe that gold will challenge its recent highs by the end of this year or in the early part of 2016. That might sound far fetched to some, but considering the gold friendly forces at work, it is a strong possibility. Ron Rosen, one of the world's most respected high-end stock pickers with an impressive 60 year record is calling for $6000 gold by the end of 2016.
This PEA gives analysts something to work with. It establishes a solid baseline. It puts together all of the work that has ever been done on the project and although the work preceding EGX’s may not have fit the QA/QC standards necessary to allow some of the inferred resources into the indicated category, the lab stressed this could be done with further work.
I have been collecting shares in several companies like this that are trading at next to zero because the analysts have bought into the theory that many of these companies will go bankrupt before the gold price rises enough to make them attractive. They look only at the U.S. dollar and they share a very western centric view of the gold market. I believe they are wrong. I believe China will have to announce their gold holdings before October and this announcement will cause an explosion in the gold price. China will need to come clean because it will be part of the process for having the renminbi accepted as a world reserve currency by the IMF. The IMF has already agreed in principle so this seems to be a pretty safe bet.
One pattern I’ve noticed over the past four decades is the decreasing number of large 10,000,000 plus ounce gold deposit discoveries. Santa Barbara, with what appears as a very limited amount of drilling for porphyry deposit, is already one of the ten largest gold discoveries of the past decade. As it appears open on all sides and at depth, it could eventually turn out to be one of the largest.
The number one criterion I use in buying these penny stocks is that the company will be able to keep the lights on long enough to survive until the gold price recovers. This PEA gives me assurance they will. We know Mr. Deller is heavily invested and is not about to walk away when we’re this close, so he may end up owning even more of the company, but the lights will definitely stay on.
A second criterion is that management is experienced enough to continue on no matter what happens. Mr. Laing is more than capable of taking this project all the way to production if necessary.
A third is that I like management that does not believe in consolidation and I know for a fact that GL will never consolidate this stock unless it becomes absolutely necessary.
With this PEA, EGX is now officially leveraged to the price of gold. Analysts can look at the PEA and see this. With each new drill hole the economics of this deposit as well as the size should improve. Since we are really only a few months away from some of the most important gold related events—Greece exit, TPP, China’s announcement, the new Chinese physical exchanges coming on line and the rapidly decreasing reserves of majors who must find new resources and unprecedented global uncertainty, I don’t think investors will have to wait all that long to see some life come into this play.
When China does announce, it is going to shock the world, because it will make it patently clear that much of the gold they have purchased has come from the N.Y. Fed, and this is gold that belonged to other countries like Germany. The WGC will have no other way to explain this, especially if they announce they have close to 10,000 tonnes.
I’m grateful this report is finally out. I expect EGX will now start responding to a rising gold price, over the next few months. The company has clearly been working behind the scenes. I trust they will do what is necessary to see this thing through.