Today I am putting together my final thoughts on Kentor Gold’s Australian Assets. As part of the acquisition of Jinka Minerals Kentor Gold acquired three projects; Burnakura and Gabanintha and Jervois.
The Jervois Base Metals Project is located 280 km north-east of Alice Springs in the Northern Territory on a land holding of 38km2. The project has Copper, Lead, Zinc, Silver and potentially Gold mineralisations.
The project is on a granted mining lease (issued prior to the introduction of Native Title Legislation) and has had over $5 million spent on past exploration. The project was also mined by Plenty River Mining Limited who commissioned a treatment plant and associated mine infrastructure in 1981. Between 1982 and 1983 2,000 tonnes of concentrate grading 50.4% Lead, 5.4% Zinc, 0.6% Copper and 680 g/t of Silver was produced. Mining was suspended in December 1983 due to a sharp fall in metal prices.
On 5 July 2011 Kentor Gold announced their initial resource estimate for the Jervois Project. In the announcement they stated:
“The copper resource was limited to a depth of 200m below surface. However, we have strong indications from previous drilling that the ore body continues at depth and along strike.”
And “Only 30% of the previous drilling was analysed for gold, hence it was not possible to include gold in the current resource estimate. However, it is intended to analyse for god with the hope of adding a gold resource as part of the copper resource estimate in the future.”
Both of these statements highlight the future upside that could occur once further drilling has been completed.
To value the Jervois Project I have analysed the in ground value of each commodity that makes up the overall resource. This is the same valuation that I used for the Gabanintha project. In addition to this I have run some back of the envelope numbers and a DCF model, however as this project is a number of years away from production I prefer to use the more conservative approach for the time being.
The approximate value (based on figures from the LME at the time of writing this post) of each commodity that makes up the resource is:
Copper US$9,000 per tonne
Lead US$2,500 per tonne
Zinc US$2189 per tonne
Silver $42 per ounce
For the purposes of my valuation I am discounting these figures to $7,500 p/t (Copper), $2,000 p/t (Lead), $1,750 p/t (Zinc), $30 per ounce (Silver). This is to take into account current market uncertainty, volatility and exchange rate risk. I then take a percentage of these figures to arrive at the following in ground value.
113,000 tonnes of Copper at an in ground value of $150 per tonne = $16,950,000
7,593,157 Oz of Silver at an in ground value of $0.60 per oz = $4,555,984
25,666 tonnes of Lead at an in ground value of $40 = $1,026,640
21,958 tonnes of Zinc at an in ground value of $35 = $768,530
Total in ground value = $23,301,154
I will admit that I do not have much experience with Lead and Zinc. I have therefore utilised 2% of the commodity to arrive at the in ground value (E.g. Lead $2,000 x 0.02 = $40). This is largely in line with the in ground value I assigned to Gold and Copper for the Gabanintha Project.
To summarise my previous research the valuation of Kentor Gold is as follows:
Burnakura High Grade Operations (DCF valuation): $45.8 million
Burnakura Heap Leach Operations (DCF valuation): $33.9 million
Gabanintha Gold-Copper Project (in ground valuation): $10.5 million
Jervois Base Metals Project (in ground valuation): $23.3 million
Conservative Cash Figure: $35 million
Total: $148.5 million
As per my previous notes I do not believe that the total figure is reflective of the true potential of Kentor Gold. My research is designed to highlight a base case scenario and as Kentor moves closer to production in each of its projects it is my belief that the market will switch from an in ground value to a DCF based valuation. As a result the share price should rise over time and be more in line with the Intersuisse report which has a target of 48 cents.
As always please do your own research and be aware that this does not represent all of my research. You should consult a financial advisor before making any investment.
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