Yesterday Kentor Gold released an announcement on the significance of the Jervois drilling program through the use of a Company Insight interview. As an investor I really appreciate it when companies use this type of channel to provide additional information to the market. They typically provide a more general overview of the company’s operations and help clarify management’s thoughts and opinions on events that are likely to shape the company’s progress.
The first key bit of information focused on Jervois and the potential for an increase in the JORC resource estimate. We already knew this was on the cards but it today’s announcement stated that “recent drilling has confirmed that the mineralised structure is still continuing strongly at 450 metres below the surface”. The future potential of Jervois cannot be underestimated in my opinion with the Managing Director, Simon Milroy, stating “I believe that we are at the early stages of understanding a large mineralised system with the clear potential to be a major base and precious metals mine.”
Additional drilling results from Reward, Green Parrot, Bellbird and Bellbird north can also be expected in the near term. This should help maintain the current rate of news flow, something that I view as very positive and a significant contributor towards underpinning the share price in the short term.
The most exciting news for Kentor (at least in the short term) is skill the development at Burnakura. Today’s announcement has clarified the company’s previous guidance of completing the refurbishment of the existing plant and small expansion by mid-2012 to June 2012. The announcement then goes on to outline an additional three phases of expansion. From this we can see that the heap leach operations are going to proceed (underlining my base case valuation of KGL), that there “will be an expansion to 500,00 tpa” by installing a second ball mill and that they are considering treating gold and copper-gold ore from Gabanintha at Burnakura.
As soon as we receive further guidance on the 500,000 tpa upgrade (in regard to timeframe and cost) I will update my discounted cash flow analysis to incorporate this. It stands without reason that a doubling of plant capacity from 250,000 tpa to 500,000 tpa has the potential to increase the value of the Burnakura operations and Kentor Gold by a significant margin.
Finally the most important line in my opinion is “we are planning to have three mines in operation with gold and copper production from Burnakura and Jervois in Australia and at Andash in the Kyrgyz Republic. Not only does this underline the future potential of the company (from zero to three mines in three years), but it talks positively about the Andash project. As I have mentioned in my previous posts if management had any major concern about Andash I do not believe they would refer to it in such a positive manner. It is my opinion that Andash is a greater than 50% chance of going ahead, however for the purpose of my valuation I will still attribute this project with a zero value.
Link to the announcement.
Link to the announcement.
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