Analyst Responds To IBW Site Visit
EMERITA SITE VISIT: Significant IBW News Flow Set to Move Shares Higher:
“We attended an Emerita site visit last week and came away believing that its IBW project is set to deliver great news flow and likely surprise investors to the upside
KEY TAKEAWAY: Tons of Meaningful News flow is on the way +65 holes still to be released prior to maiden resource in Q2 the heart of the historic high grade(~5Mt) has yet to be drilled (now pads are permitted and drilling has started) lots of massive sulp hide hits waiting for assays near term: high impact potential from deep Infanta drilling + Romanera confirmation and expansion holes
20Mt @ 10-12% ZnEq maiden resource potential leapfrog model being update in real time with every hole providing more confidence 2X Adriatic's (A$900M) Rupice deposit - Vares mine estimated to start production mid-2023 2X Foran's (C$680M) McIlvenna Main deposit - FS stage awaiting permits
cut-off for resource expected in January - deposits will remain open for expansion Exploration drilling upside is significant at IBW and Nuevo Tintillo El Cura, third potential IBW deposit (Q1/23) Romanera and Infanta strike and depth extensions (ongoing)
New alteration zone identified between El Cura and Infanta (H1/23) IBW 20km structural feature with several historic shafts recently identified, (H1/23) Nuevo Tintillo top prospects include historic 6% Cu mine, Minera Nazaret and old OP, Santa Flora (Q1/23) Path to production being paved in 2023 for 4,000-6,000 tpd operation
Resource Q2 Metallurgy Q2/3
Exploitation application submission Q2 - approval est. 2024, baseline studies initiated in Q2/22 Water permits H1
PFS H2
Aznalcollar Optionality has a defined outside timeline Sentencing trial set for Q2/25Significant optional value should start showing up in the stock as the trial approaches (Q4/24?)
Potential options to bring forward the timing will be pursued but not discussed/promoted Timeline for resource may slip to April vs March
results are taking longer than originally anticipated 30+ holes in the lab with 30+ more to be drilled and assayed Attractive valuation just based on IBW alone Even the most conservative case based on the historic resource (~12 Mt) at IBW only (no expansion considered) supports valuation of C$1.90/sh.
Clarus Base Case Valuation without Aznalcollar (IBW Only with expansions ~20 Mt) is +$3/sh, still a strong BUY.
EMO trades at ~70% discount to peers on both P/NAV & EV/lb ZnEq basis (see table at end).
Romanera’s historic resource is comparable in size to Adriatic’s (ADT-TSX; M.Cap. ~C$798 MM) Rupice deposit, which is currently under construction with first production expected in 2023, as well as to the Main Zone at Foran’s (FOM-TSX.V; M.Cap. ~C$662 MM) McIlvenna deposit, which recently secured a C$200 MM investment from Teacher’s and C$100 MM from Fairfax (see table at end). EMO is trading at ~C$150 MM, a significant discount to these relatively advanced peers, indicating the potential returns as Romanera advances on de-risking milestones with an updated resource in Q2/23.
IBW COULD GET REALLY BIG:
Mineralized Area is Growing:
The image below says a lot about the potential at Romanera. The red represents the surface footprint of the historic OP resource, the blue is the current mineralized area (based on drilling to date) and the yellow is the potential footprint (based on geophysics). Not all the mineralized area will make it into an UG resource but with the current "blue' mineralized area being ~2X the historic area the chances of adding significant tonnage at Romanera seems high. Specific Gravity is > 4
An SG of > 4 allows tonnes to build quickly. A typical gold mine has an SG of ~2,7 so the same volume of rock contains ~50% more tonnage at Romanera. We suspect the tonnage could be significantly larger than the historic 11.2Mt high grade subset at Romanera for several reasons:
the footprint looks like it could be +2X the historic
a higher-grade gold zone is emerging that was originally not model (see wedge in image below), this coupled with more consistent assaying of both upper and lower lenses should result in meaningful tonnage adds within the original footprint
there is significant depth extension potential that will be tested with two deep holes in Q1 (1000m) coupled with downhole geophysics La Infanta, El Cura and Others
Recent deep drilling at La Infanta indicates this deposit could have a lot more to show. Assays are pending for the deepest hole to date, ~400m. Visually it looks like the high grade nature of Infanta continues to depth and that the deposit maybe thickening (at least in the drilled area). Many deposits in the belt go to +1000m so there is lots of running room for all the IBW deposits to expand to depth. We currently estimate La Infanta will grow to 2-4Mt in the upcoming resource estimate.. An economic hit at 400m depth would indicate the potential for Infanta's resource to perhaps double or more.
At El Cura, a new geophysical survey is just being completed which will help target drilling in January. Historical notes indicated El Cura had strong copper showings/drill results but Emerita does not have the access to the historic results. This target could add a copper rich deposit to the equation at IBW and adding additional tonnage.
The regional potential at IBW is also very real. Recently, a new alteration zone was identified between El Cura and Infanta. As well, several old shafts along a 20km corridor running from Romanera towards the Portuguese border have been identified by EMOs structural geologist. These targets will be worked up and drilled in 2023
Targeting a 4,000-6,000tpd Operation:
Early days, but to put this into context, a 5,000tpd operation would be ~2X Adriatic's planned throughput and almost 20% larger than Foran's (reminder that historic high grade at Romanera is very similar to that at Adriatic and Foran's higher-grade Main zone). A maiden resource of ~20Mt would support a 10+ mine life. Adriatic's NPV 8% of ~1.6Bn and Foran's NPV 7% of C$1.1Bn provides some insight into what economics might look like when the PFS comes out in 2023. The company plans to apply for an exploitation license post the submission of base line environmental studies in Q2/23. This exploitation license is the critical path item on the way to construction, and management believes it could be awarded in 2024, setting the stage for construction to begin in late 2024/ early 2025.
NUEVo TINTILLO and AZNALCOLLAR OPTIONALITY
Nuevo Tintillo (NT) sits between the Riotinto Mine and Aznalcollar (see image below). Multiple historic mines exist on the property including the high grade (6% Cu) Minera Nazaret. Drilling is likely to begin in Q1 around the historic Santa Flora OP?UG mine and Minera Nazaret. A discovery at NT could add nicely to the share price due to the potential value it could have to either neighbouring project. Talk around Aznalcollar should now cool down as the court date is over 2 years away. We believe this is actually a positive as it will allow the market to focus on the very material news flow expected to come from IBW and Neuvo Tintillo in 2023. We are sure that management will be working behind the scenes to get an earlier resolution but we don't expect to hear updates on this front. If the current timeline persist we would expect material option value to start creeping into the share price as the trial date nears (Q4/24?).
CONCLUSION:
News flow will be accelerating and many mile markers will be passed in 2023 on the way to demonstrating IBW has what it takes to be a mine. Exploration activities and drill results should continue to keep investors interested. The last time Emerita's share price was around this level the company was just granted drill permits for Romanera and El Cura and the Courts had yet to approve the "Oral Trial Opening Order'. Now the Courts have set a date, albeit out there in time, Romanera has 14 rigs turning, El Cura and Neuvo Tintillo exploration is about to commence and several regional targets have been identified. The company is a few months away from a maiden resource and other major milestones. Seems like a disconnect due to the Aznalcollar trial timing, management's messaging around the proceedings and tax loss selling is creating a great buying opportunity. 5 from #emo, 15 minutes ago
@Drjimjones If you’d walk the ground you’d understand completely that Romanera and La Infanta are going to grow. Then add in El Cura, Neuvo Tintillo. Labs are struggling to keep up with our cores. Thousands of samples, this will be a very robust 43-101 imho. And they keep finding more high grade good problem to have. New zone at La Infanta is very interesting as well. “ Recent deep drilling at La Infanta indicates this deposit could have a lot more to show. Assays are pending for the deepest hole to date, ~400m. Visually it looks like the high grade nature of Infanta continues to depth and that the deposit maybe thickening” look forward to those assays in addition to Romanera’s 5 from #emo, 8 minutes ago
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