Gold: A Mega Mine in the
By Marc Davis of www.BNWnews.ca
quest to commercialize one of Latin America’s last undeveloped major gold
deposits is one major step closer to a prospectively big pay day for its
unlikely owner – a small gold explorer named Exeter Resource.
Canadian-headquartered company, Exeter (TSX: XRC) (NYSE: AMEX: XRA) recently
completed a major milestone development. It announced a positive metallurgical
study for the sprawling Caspiche gold-copper deposit in northern Chile’s
gold-rich Maricunga mineral belt. This is where over 100 million ounces of gold
are concentrated among a clutch of mines.
deposit weighs-in at 26 million ounces of gold, 6.7 billion pounds of copper and
48.4 million ounces of silver. This makes it one of the world’s biggest gold
discoveries and one of only a handful of mega deposits not yet bought by one of
the industry major mining companies.
only other mine-in-the-making in Latin America that edges Caspiche in terms of
size is the nearby Cerro Casale deposit. Jointly owned by global gold mining
powerhouses, Barrick Gold (TSX: ABX) (NYSE: ABX) and Kinross Gold Corp. (TSX: K)
(NYSE: KGC), it hosts 28.8 million ounces of gold. It is scheduled for the
completion of detailed engineering this year and the startup of mine
construction in 2012.
Exeter’s vice president of development, Jerry Perkins, says the metallurgical
study on the bulk of Exeter’s mineral resources suggests that gold, silver and
copper can be mined without any unusual technical obstacles. “Test work has
demonstrated that Caspiche sulfide mineralization can be successfully treated
using commercially available technologies to produce readily marketable
products,” he says.
West, a precious metals analyst for the Vancouver-based investment bank, Salman
Partners, says that this development goes a long way towards de-risking the
one of the larger hurdles that they needed to surpass,” he says. “In my
estimation this makes the company a more attractive takeover candidate for a
major company that can afford the large CAPEX (mine building) costs involved in
a project of this size and complexity.”
though Exeter has been the subject of takeover rumors for some time, the company
says it’s happy to go it alone through 2011 – as it’s convinced that there is
considerably more value in the project that has yet to be unlocked.
that note, Exeter’s metallurgical work will be a key component of a
pre-feasibility study (an initial blueprint for a mine) that Exeter has
scheduled for completion late this year. Meanwhile, the final major hurdle to
validating Caspiche’s commercial viability will be to set out a capital and
operating cost analysis, Exeter’s management says.
According to mutual fund manager Marshall Berol, the odds in favor of Caspiche
becoming a mine are also reinforced by the presence of plenty of mining
infrastructure in the lustrous Maricunga gold belt. Notably, the Cerro Casale
mine and Kinross’ 6.2-million-ounce Maricunga Mine straddle Caspiche on either
Caspiche project is an exceptional resource. And ultimately, significant
economies of scale could be realized if the major players get together to share
mining infrastructure in the area,” Berol says.
co-manages the San Francisco-based Encompass Fund, which has a heavy weighting
in mining equities, and which has been a stellar performer over the past four
years as a result of a resurgent market in gold stocks. This small mutual fund
was ranked as the second best performer last year among over 15,700 global
equity funds that are tracked by Morningstar, a financial sector ratings agency.
several other large-scale gold projects elsewhere in Latin America, Caspiche’s
location in Chile also offers a key geopolitical advantage to the company and
investors alike, Berol adds. Specifically, Chile is a politically stable
democracy that has long been mining-friendly, especially since this
capital-intensive industry is essentially the backbone of its economy.
agrees that advanced-stage gold explorers like Exeter that have assets in
politically stable jurisdictions offer attractive risk/reward profiles for
investors who want leveraged exposure to a ‘rising tide’ market for bullion
“There’s much greater potential upside for the share prices of these stocks,
compared with the potential upside of owning physical gold,” he says. “Investors
who take further risks by holding equities require risk premiums and should
receive them over time.”
Another key advantage is that an asset-rich junior gold stock’s upside does not
necessarily have a strong correlation to bullion prices, West says. If a company
develops a rich enough deposit to warrant a mine, its share price should likely
enjoy a re-rating once the mine is developed, regardless of the prevailing trend
in gold prices.
Company Chairman Yale Simpson says that the bull market for commodities is also
weighing in Caspiche’s favor. For instance, the price of copper has more or less
tripled to over $4 a pound since the depths of its pronounced slump in early
Similarly, a sustained bull market for both gold and silver continues to add
significantly greater value to the precious metals component of this world-class
asset. And this has further enhanced the economics in favor of Caspiche going
into production, Simpson adds.
Elsewhere in the world, the only other gold junior that is developing a
comparably huge world-class gold deposit is Ivanhoe Mines (NYSE: IVN) (TSX: IVN),
which is the majority owner of a huge 45-million-ounce deposit in Mongolia. Also
worthy of note is Novagold Resources (NYSE-AMEX: NG, TSX: NG), which has two
company-maker deposits in Alaska with combined resources of over 31 million
ounces of gold.
The principals of
www.BNWnews.ca do not directly or indirectly own shares in the stocks
and investment funds mentioned in this article.