Seeking Alpha
Profile| Send Message|
( followers)  

The fundamental mining characteristic and future prospects for Exeter Resources (NYSEMKT:XRA) are exciting. It is hard to find a junior gold miner with stronger mining fundamentals and future potential than XRA. Exeter Resources is in the development and evaluation stages of opening one of the largest open pit gold deposits in the world. XRA’s signature project, the Caspiche gold deposit, is a large gold, silver and copper mine located in Northern Chile. With its impressive strategic mining characteristics and mass gold deposits, XRA provides investors superior exposure and leverage to gold.

Brief History

Exeter Resources has its headquarters in Vancouver, Canada, and currently owns 100% of the Caspiche gold discovery located in Northern Chile. Exeter’s senior management has exceptional expertise in South American gold exploration, which has allowed Exeter to focus solely on the Caspiche project. Exeter’s extensive and diligent studies have suggested that the Caspiche deposits have more than 35 million ounces of potential gold. Exeter has divided the Caspiche deposit into two main segments, the Oxide Open Pit and Sulfide Underground Pit. XRA is currently in the process of conducting pre-feasibility studies on each segment.

Investment Highlights

  • 100% ownership of the Caspiche gold deposit, which is one of the largest and last undeveloped gold/copper deposits in northern Chile
  • The XRA owned Caspiche deposit is located only a few miles away from other developing and producing gold projects owned by large gold producers such as Kinross (NYSE:KGC), Andina, Barrick (NYSE:ABX), and Goldcorp (NYSE:GG).
  • Chile is a mine friendly country, politically stable and an Organization for Economic Co-operation and Development country.
  • One of the largest resource bases of any junior or mid-tier gold company with more than 35 million ounces of gold measured and inferred.
  • XRA maintains a strong balance sheet with few liabilities and more than $90 million cash on hand.
  • Exeter’s management owns more than 15% of total shares outstanding.
  • XRA recently completed positive pre-feasibility studies for their Oxide Open Pit.

Share potential

What makes XRA so attractive is the amount of potential gold each dollar of XRA stock yields to investors. By taking the total amount of gold measured and inferred in the Caspiche project, dividing it by XRA shares outstanding, dividing it by the current price of XRA and eventually multiplying this number by recent gold prices, one dollar in XRA stock is worth $140 dollars of gold. This number of potential gold is almost three times higher than the nearest mid-tier gold company. For comparison value, you get under five dollars of gold per dollar invested in Goldcorp and other large-cap gold producers.

(Total Gold Measured and Inferred/Shares Outstanding) / Share Price X $1700oz gold

(35,900,000)/99,800,000) / $4.4 x $1700 = 138.98

To realize the 35 million ounces of gold it will take several years of strong execution on behalf of the Exeter management team. Recently all of the company’s efforts have been focused on evaluating the various options and strategies to capitalize on both the smaller Oxidize deposit as well as the larger and more long-term Sulfide deposit. Just this last year Exeter partnered with Jacobs Engineering (NYSE:JEC) to evaluate the feasibility and true value of the XRA Oxide deposit. Exeter’s Oxide deposit is much smaller than the Sulfide deposit and geographically a much younger deposit sitting closer to ground surface. Deposits like this are typically easy to produce and yield gold faster than underground deposits. The pre-feasibility results conducted by Jacobs Engineering showed positive numbers and valuations.

The JEC study suggested the Oxide deposit have more than 1.35 million oz of gold and 5.36 million oz of silver. The JEC study showed the deposit producing 210,000 oz of gold and 365,000 oz of silver annually. With the cash flow from this gold/silver the study showed the future Oxide project would have a positive NPV over five years of more than $330 million, considering capital costs of $335 million. With this same cash flow and costs the project’s internal rate of return would be more than 34% and have a payback period of 3.2 years. The total cash costs per ounce of gold mined would be a little more than $500. The net value of this potential project is almost worth XRA’s current market cap!

The purpose of the Oxide pre feasibility study was to simply see what kind of value the Oxide deposit had alone. The study proved the Oxide resources to be valuable and attractive. Exeter concluded it could mine the Oxide deposit without a partner, using its own capital, timeline and strategies. This is exciting for Exeter for several reasons. First, if Exeter were to decide to mine the Oxide deposit it would give Exeter a fast and easy way to immediate cash flow with the project ultimately yielding XRA profits of more than $300 million. In addition to profits, all of the equipment and infrastructure would be residuals for the larger and more significant Sulfide project. The capital costs for the oxide project would carry directly over to the development stages on the large Sulfide deposits. The Oxide deposits could provide Exeter with an easy and profitable start on some serious gold production.

Exeter is still in the process of diligently evaluating and picking the most appropriate strategy for both its Caspiche deposits. The Oxide pre-feasibility study has encouraged XRA management and shown investors that the gold measurements and inferred results are realistic. Although the company has yet to dig up any gold or realize profits, the measured gold deposits and recent pre-feasibility studies are attractive. When junior minors like XRA start producing gold or become takeover targets, initial investors are already sitting on multi-bag returns.

Disclosure: Long XRA stock at $4.25

Source: $140 Of Gold For 1 Paper Dollar: I'll Take That Deal