Mega Mine Project Makes the
By Marc Davis of www.BNWnews.ca
The improbable feat of
commercializing Latin America’s second largest undeveloped gold deposit has
achieved a major milestone validation for its unlikely owner, a small Canadian
explorer named Exeter Resource.
Last week, Vancouver-based
Exeter (TSX: XRC) (NYSE: AMEX: XRA) completed an initial blueprint for a mine,
known as a pre-feasibility study, that suggests a mine worth over $27 billion in
future revenues is technically and economically viable.
Known as the Caspiche deposit,
this monster deposit is located in northern Chile’s gold-rich Maricunga mineral
belt, where over 100 million ounces of gold are already concentrated among a
clutch of existing mines.
Now the region has gained some
additional luster with the announcement that Caspiche boasts 19.3 million proven
and probable ounces of gold. A further 4.6 billion pounds of copper and over 41
million ounces of silver also sweetens the overall value of the deposit. This
makes it one of the world’s biggest gold discoveries in recent years and one of
only a tiny handful of mega deposits not yet snapped-up by the world’s major
David West, a precious metals
analyst for the Vancouver-based investment bank, Salman Partners, says that this
pivotal benchmark development significantly de-risks Caspiche and makes it a
prospectively tantalizing takeover target for the world’s top gold producers.
“It certainly raises the
company’s profile as a takeover candidate, which could be one of the usual
suspects in terms of larger mining companies,” he says. “Or you might even see a
Chinese company take a run at it.”
In spite of the prohibitive mine development costs involved – totaling $4.8
billion -- a project of this magnitude is something that major mining companies
can’t really afford to pass up on indefinitely, West adds. “Sooner or later,
someone will buy-out this project.”
Caspiche’s appeal is underscored by the fact that fewer and fewer world-class
gold deposits (at least five million ounces in size) are being found. The
current success rate is about one per year, regardless of how many companies are
hunting for them and the approximately US $4 billion per year that is being
spent on this increasingly challenging quest.
In spite of bullion’s spot price
having increased six-fold since its lows nearly a decade ago, the world’s
deep-pocketed, big-league gold miners have found themselves scrambling to
replenish dwindling inventories. So they’re aggressively targeting takeover
candidates that own undeveloped multi-million ounce discoveries, rather than
merely relying on organic growth.
The fact that Caspiche is
projected to produce approximately 700,000 ounces of gold per annum for at least
19 years would be meaningful to the bottom line of any multinational gold miner,
West says. This is especially the case for any of the world’s top producers, all
of which need to yield up to several million ounces each year just to keep pace
with their rivals.
Another major value driver for
Caspiche is that it sits at the heart of the Maricunga mineral belt, which has
ample mining infrastructure already in-place. This considerably reinforces the
odds in favor of Caspiche becoming a mine, according to Marshall Berol. He
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 few
years as a result of a resurgent market in gold stocks.
“Significant economies of scale
could be realized if the major players in the area get together to share mining
infrastructure,” Berol says.
The dominant gold industry
“players’ that he’s referring to are Barrick Gold Corp. (TSX: ABX) (NYSE: ABX),
Kinross Gold Corp. (TSX: K) (NYSE: KGC) and Goldcorp Inc. (TSX: G) (NYSE: GG).
In particular, Barrick and Kinross own most of the Maricunga gold camp’s prized
assets. They include the two nearby mines that straddle Caspiche on each side,
one of which is a comparably-sized mine in-the-making called Cerro Casale.
Unlike several other large-scale
gold projects elsewhere in Latin America, Caspiche’s location in Chile also
offers a key geopolitical advantage to Exeter and to any of its suitors, Berol
says. 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.
Meanwhile, Goldcorp (the world’s
fifth largest gold producer and second biggest in terms of market
capitalization) is aggressively expanding its mining activities in the Maricunga
region. Just last week, the company announced its decision to spend $3.9 billion
on the building of mine at its El Morro gold deposit, which is one of Caspiche’s
At 8.4 million ounces of gold
and 6.1 billion pounds of copper in size, El Morro is considerably smaller than
Caspiche, in spite of being almost as expensive to build. And its projected
annual output is only 210,000 ounces of gold and 200 million pounds of copper
over a 17-year mine life. On a comparison basis, this demonstrates how
relatively inexpensive the Caspiche mine will be to build relative to its
prolific projected gold and copper output over nearly two decades.
This reality further heightens
Caspiche’s appeal as a takeover candidate. In fact, its prolific size “should
draw the attention of numerous interested parties” according to Wendell Zerb, a
Vancouver-based mining analyst for the brokerage house Canaccord Adams.
“We continue to value Exeter on
metrics related to it ultimately being acquired,” he adds in a recent 13-page
investment letter to investors. Along with the premium that Exeter’s share price
should enjoy in the event of an attractive takeover offer, additional value
should be built-into the stock’s pricing by the completion of a full feasibility
study (a final blueprint for a mine), which is expected to be published before
the year’s end, Zerb says. Hence, he foresees considerable potential upside for
the company’s share price over the next 12 months.
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