Hill End Gold (ASX:HEG) is undervalued on a current EV/Gold resource ounce basis against its peers. This becomes more acute when factoring in an aggressive drill program - likely to add near surface commercial gold resources ounces at its New South Wales projects.
Why Hill End Gold is undervalued is usefully defined. In this case: a total JORC Resource of 557,000 ounces while significant is not a 1 million ounce resource. This is likely to change as there is a 1 million ounce "near term" target, with drilling underway.
Change of focus: In the past, the focus may have vexed some investors. However, there is a clear goal to develop near surface satellite open pittable gold deposits.
Given low projected CAPEX and OPEX would provide healthy returns to shareholders.
Given the cash position is robust at $3.8m this is less of a constraint moving forward.
Hill End Gold's 29.1% shareholder, Singapore's Infiniti acquired its stake at a price of $0.025 per share.
While Infiniti is a supportive shareholder, we would expect the company to be looking for Hill End Gold to increase resource ounces at Hargraves in the near term as well as move toward bulk mining by 2014 and a lift in the valuation of the company.
We would expect Hill End Gold to attempt to define a Reserve at Hargraves by the end of the 2012 which would lead into a Pre-Feasibility Mining Plan.
The Company is shifting development focus to the delineation of open pittable resources at Big Nugget Hill and Big Nugget Hill North. Proactive Investors estimates exploration potential of 0.5M ounces of gold.
Conceptual mining studies are already underway at Big Nugget Hill where a planned production rate of 1 MTPA from open pit mining at, at a grade of ~2 g/t for a CAPEX of ~$43M is under evaluation, and will be updated as a formal mining study that is scheduled for completion at the end of calendar 2012.
Gold values are amenable to extraction by simple gravity separation that reduces the Run of Mine to ~1.4% of its original volume; and that small volume can be leached to produce gold doré for final refining at very low CAPEX and OPEX.
Proactive Investors believes that the aggressive drill and development programme underway over multiple targets at Big Nugget Hill and the Meroo have potential to quickly build total gold resources on all tenements to 1.0M ounces.
This should build momentum. Should this slip, we could see the Singapore connection taking more interest. Notably, Hill End Gold director Quah Su-Yin is also CEO of Singapore's Infiniti and Asiasons - which is the largest shareholder in S$1.1B, valued Singapore listed LionGold Corporation. Acquisitive LionGold has made takeover offers for a number of ASX listed gold developers.
With a shift in focus, an acquisitive shareholder group with a 30% stake and cash of $3.8m we have derived a valuation and price target of $0.03 - $0.05 per share for Hill End Gold over the next 12 months.
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