RE:RE:Landing Zone
22 years after IVN geologists were concluding the deep vent centre of Hugo North was likely close to or North of the JV line, and nobody has absolute certainty about the extent of HNE.
However, IVN ran their Zeus deep polarity survey and what is different from the results they saw and greenfield exploration elsewhere on the JV is they already knew what mineralization lined-up with the IP mapping up to 725mN onto the JV from drilling. When the drills at 1300mN or intersected weak mineralization at the bottom, they also had the same rock strata as surrounded and overlay the ore body up to the intersecting fault at HNE around 740mN. Greg Crowe NR'd his interpretation "intersected the top of a continuation of the same ore body." He later said RF was not happy, no doubt because in his estimation there was more than enough value to sail through a PEA and feasability study to justify Lift 1 and the major third party financing that came to pass. Why drill more at that time?
The drilling was deep, expensive and technically difficult further North as a granite cap rock layer was deflecting the Navi-drills and they lost some expensive holes prior to hitting their targets.
In a rational world eventually Rio Tinto would have a plan to restart drilling, but recall they only owned 51% of TRQ, and the Mongolians were balking at their increasing financing due to being fully financed equity partners with compounding debt coming between them and future earnings. At some point, if not from the outset, somebody smart at Rio Tinto reasoned the disputes with Mongolia, controversies about costs, and the halted further resource additions actually served their intentions very well. The press started to focus on the critics, the delays, the Mongolian dissatisfaction, and nowhere (except among frustrated ETG shareholders) was anyone saying very loudly what you just said, Rocck - the resource was still open and probabilities highly favoured a much more valuable resource.
when TRQ was taken out, and the Mongolians relieved of their debt, the path was finally opened to get cracking on finding out what Lift 2 might be ... presto, we are told an Order of Magnitude study is in order, and the drills start turning again. Except, 16 wasted years pass by (from Rio's point of view not necessarily delaying any mining plans as Lift 1 mining would run for eight years or so. They skinned TRQ for peanuts (remember TRQ consolidated has 40% of HNE earnings coming their way), but, small problem, ETG which had been shoved aside in 2008 when it was clear the JV couldn't be fully valued, was now screaming out for additional valuation data if Mongolia and Rio Tinto were to buy out the last direct public equity in OT.
All the four major parties - Rio Tinto, Mongolia, ETG management and HCU know for sure there are significant additional resources to be added to the downstream mining plans, what they don't know is how much, and whether they might be some other low hanging fruit on the JV indicated by the Zeus survey and far from sufficiently drilled to build any certainty between additional bonanza or no dice, nothing that will move the needle on resource NPV immediately.
If Lift 2 is much bigger - and it could be bigger by a factor of 2, 3, 4 times the high grade tonnages, the NPV will rise by a smaller factor, but significantly. If they hit a high grade shallow deposit further North the green light decision on another mine and a large mill expansion will obviously blink on, and it would be a major upvaluation of the JV. ETG shareholders don't want to walk away from a big addition on valuation, like you note, Rio Tinyo doesn't want to add fuel to the fire, but they can't swing a deal unless they substantially sweeten the price for ETG. So we get some drilling. Rio Tinto watches global economic conditions and must feel pressure from Mongolia that wants to secure a full 34% of all OT - their long held line in the sand. They don't care about the cost because they never have and never will pay a dime, but they must be salivating at the thought of Rio Tinto expanding OT and accelerating Lift 2 where huge NSR's lie in wait. Note that because the HNE decline and conveyor and the major underground infrastructure for Lift 1 covers off much of the capex for Lift 2, Lift 2 all in sustaining costs are going to be significantly lower.
It's extremely interesting the position Rio Tinto is in now. Rising copper and gold prices should (and nothing is certain in economics) rise with the combination of a rate reduction cycle out of the FED and the political winds blowing towards clean energy and carbon emission reduction. Up goes ETG valuation regardless of the big questions surrounding a project expansion/acceleration.
Do yourself a favour if you are an uncertain ETG long holder and take a good long look at the 5 year ETG price chart.
IF we have to wait for drilling to swing a buyout, could you be content with a status quo of continuation of that chart pattern?
There are many reasons to see the pressure building on Rio Tinto to impute additional value beyond the stated resources and valuations to date. As it stands, we now know as a certainty that the Lift 2 ore body cut-offs and NSR's will rise to incorporate elevated long term metals price assumptions. And as matters stand, time to the projected cash flows from Lifts 1 and 2 are shrinking, pushing up NPV of ETG.
I'd like out as well, none of us are getting younger, it has been 20 years since the Earn-in was struck, we still hold the mining licences but we don't have tax stability and the Mongolians don't have 34% of the JV without ETG's position resolved.
I'm killing time here with a new Canadian tax twist - the higher inclusion rate for capital gains in any one year above $250,000 per individual gives those bloodsuckers in Ottawa a 7% or so lift on their share of any "all at once" monetization and buy-out above the threshold. So you could chance a sale and buy-back to realize some profits year by tax year (avoiding the rules against superficial transactions) which risks being off the bag if a buyout was sprung unexpectedly. Or, if you are inter-generational planning, you might consider bringing in family members by gifting and triggering some immediate gains, and sterilizing more sub-$250,000 gains across more individual accounts. That's a 7% win on the higher portion for those of us fortunate to already be in the money personally above that threshold.
i wouldn't be surprised to see some insider filings, not sale into the public market, but private transfer of free trading shares to related individuals.
This is a happy season for ETG now, of course but can retrace and consolidate, but it sure looks pretty promising to offer returns far above any peer group copper play, with pretty high certainty, subject to Mongolian risks, of substantial upside not in some early stage play, but a tier one mine built, producing, and about to sink substantial capex into the JV. And odds favour a production revision and expansion along with upwards revised estimates of current value.
I like it. I'm long, my bias is optimistic. ETG in my mind has stayed in the piece because it does have a substantial premium coming down the pipe.
That's my theory and we'll see how it plays out. I guess it has been fits and starts all along but I like the upside probabilities vs the downsides. The risk reward proposition looks favourable to me. Roll dem bones!
cg