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Evolving Gold (EVG) Exploring In The West

|Includes: Evolving Gold Corp. (EVOGF)
Evolving Gold (EVG.TO and EVOGF.PK) is prospecting in several well-explored areas. Their challenge is to bring several years' worth of effort to fruition.

The company's recent financial history deserves scrutiny. They closed a private placement in July 2010 for $15.6mm and apparently burned through it in about a year. Goldcorp owned 19mm shares worth $0.82 a share at that point. EVG secured their most recent private placement in August 2011, receiving $5.8mm. This placement valued the company at $0.56 per share (not counting warrants, which at an exercise price of $0.75/share have no value at present). The investors keeping this company alive with cash infusions are expecting progressively lower valuations, which is no surprise given the company's operating history. Appointing a new CEO in March 2011 was a necessary step in retaining investor confidence and keeping their drilling programs on track.

Several years' worth of exploration efforts in multiple properties have yet to result in independently verified assays or a 43-101 compliant report. The lack of confirmed 2P reserves makes it impossible to establish a firm valuation for this company. The delays in confirming announced discoveries seem to to stem in part from an inefficient drilling program. EVG's most recent investor presentation emphasizes vertical drilling, yet the Carlin trend's geology is so well-known that vein locations can probably be estimated more accurately than EVG has done so far. Talented drillers can drill at slants to intercept multiple veins with one bore hole; it isn't clear whether EVG has ever considered slant drilling in any of its properties, let alone the Carlin trend. Their recently completed airborne radiometric and magnetic surveys of their Rattlesnake property should have been completed long ago, so the company's plan for renewed drilling is long overdue. Agnico-Eagle must be wondering if its commitment to fully fund exploration at Rattlesnake is worth the cost.

The viability of the Rattlesnake property is worth a mention. Photos of the property reveal a varied topography of multiple hills and spurs with 40-degree inclines. EVG claims Rattlesnake's ores have plenty of oxides that will allow for efficient gold separation through heap leeching. The only suitable place to locate a heap leeching pond is a plateau that looks to be several miles from the primary drill intercepts, so the logistics requirements of trucking ore a few more miles will add costs to any operation. JV partners like Agnico-Eagle will need to know this before committing to development.

EVG investors will need patience. The firm has been operating for over four years and needs to show results. One thing they can do immediately is commit to wisely using cash. They closed their last fiscal year with $8.7mm in cash and now seem to have about $6mm on hand. Most of that $6mm seems to have recently arrived from the August private placement mentioned above. Did they completely spend their March cash balance in eight months? Keeping exploration costs under control will be imperative, because they will have to raise more private placements in 2012 to complete the surveying they should have done in the first place prior to drilling holes. They should also consider the cost of future purchases of mineral rights from those private landowners in the Carlin-Humboldt project who are not yet fully on board with development. A bet on an exploration-only company is a bet on managerial talent. Management should take a page out of other junior miners' playbooks and investigate whether its properties sit astride geothermal vents. Leasing some property to a geothermal developer can provide them with cash flow they'll need to survive.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.