Waiting Game
It's been 19 years since ETG surrendered 80% of what have turned out to be immensely valuable deposits in HNE (Lifts 1 and 2) and Heruga to IVN by entering into the Earn-In Agreement. Since then the JV has had long periods of restricted or no exploration. The expense commitment of $40 million promised by IVN turned out to be virtually negligible, although the financing of all exploration and development to production has been helpful to allow ETG to remain a viable player at OT.
But consider the failures of IVN, and then OTLLC (its successor to the OT assets and obligations after the IA was agreed with Mongolia in 2009). The Earn-in promised best efforts to procure same-as IA treatment for ETG. Not delivered. A final JV Agreement should have been negotiation and executed - not accomplished. The key high grade ore comprising HNE, particularly Lift 2, should have been definitively outlined by condemnation drilling - the question of the strike length and depth of Lift 2 and HNE is critical to ETG's valuation - not accomplished. High priority drill targets across the JV - undrilled. The question of Mongolia's goal of having a 34% interest in all OT deposits not resolved relating to ETG - no doubt because Rio and TRQ refused to shoulder the cost notwithstanding a contractual obligation to use best efforts to procure IA treatment for ETG. The two mining licences over HNE and Heruga, still held in ETG's name notwithstanding an intention in 2008 forward that they would be transferred to OTLLC - they stand as security for unfulfilled obligations under the Earn in and Draft JV terms pending resolution.
I've repeated the same idea many times - OTLLC should buy out ETG in whole at a fair valuation, especially regarding the value of a materially increased size of HNE Lift 2 and the value of the prospective JV targets, 100% Shivee West, and an in-situ value for Heruga that gives value for the optionality of advancing the Heruga development timeline. All ETG issues would vanish and the inefficient and clumsy ownership of a small passive interest holder (relative to all of OT) would be ended. The public listing and the management of ETG contributes title or nothing to the project except unnecessary and duplicating administration expense.
But we wait. In the meantime, however, watch the long term trend lines for copper and gold, once again both trending very close to what seem to be important psychological market levels of $4 copper and $2000 gold on the spot market.
TRQ was taken out at a thin valuation - I have an axe to grind with the very accommodating valuation opinion given by TD Bank which employed a $3.50 long term price for copper in particular. Reason being, even if copper producers could achieve supply balance for anticipated high growth demands in the next 15 years or so, in the valuation the discounting of future cashflows beyond 20 years or so renders the interim price far more important for defining the total asset value. And the outlook for copper prices over the next ten years is that they should trend substantially higher. They will also, like all commodities, respond to financial price inflation mitigating mining cost escalation. In short, by waiting, the valuation picture for ETG is only going to improve, both by advancing time to production, and by confirming a period of higher metals prices in the JV production stream.
The stock is severely undervalued. So hang in there if you can, signs are positive for substantial price gains whether by a large premium takeout, or merely the market finally recognizing the sizeable near term free cashflows due to ETG as HNE Lift 1 mining on the JV approaches.
it's all about the value of the NSR's and the situation looks very positive.
cg