Based on a recent site visit to Sunrige Gold's (CVE:SGC) properties in Eritrea, the company received a stellar assessment from capital markets firm Ocean Equities Thursday, who said Sunridge was poised for a "significant re-rating" in 2012.
"A recent site visit hosted by Sunridge Gold...highlighted the quality of mineral deposits in Eritrea and the exciting prospects of mining in a nation that currently has a severe misconception from the investment community," Ocean analyst Adam Lucas said.
"Mining in Eritrea is gaining momentum with policies and procedures in place facilitating the development of a valuable industry for the country. Sunridge is poised for a significant re-rating as we enter 2012."
In the report, Ocean highlighted key factors that could provide impetus for an upward trend in Sunridge's valuation in the new year, including feasibility studies on all advanced projects due in the first quarter of 2012.
Early next year, the company is expecting to release a feasibility study (FS) on the Debarwa project, which will include a production schedule with initial direct shipping ore copper production to ensure "quick ramp up, and access to early cash flow", Ocean said.
"The study will be an important milestone for the company as Sunridge will then be able to effectively assign a value to the Debarwa project supporting the application of a mining license in Eritrea."
The Debarwa copper-zinc-gold volcanogenic massive sulphide (VMS) deposit is located approximately 25 kilometres south-southwest of the capital city Asmara, and is accessible by a paved road from
The mineralization at Debarwa consists of a surface oxide gold zone extending to approximately 65 metres depth, with a higher grade sulphate rich gold and silver transition zone that is underlain by an enriched "copper supergene zone" to around 110 metres depth. The supergene zone is in then underlain by a copper/zinc-rich primary sulphide zone.
Included in the copper supergene mineralized area is a Direct Shipping Ore (DSO) zone, which represents a relatively low risk operation from a metallurgical standpoint, and would minimize the required capital to bring Debarwa into production, the research report noted.
In addition, pre-feasibility studies (NYSE:PFS) on the Northern Asmara assets, including the Emba Derho, Adi Nefas and Gupo deposits, are scheduled to be released to the market late in the first quarter. The Northern Asmara assets are shaping up as Sunridge's primary assets, with the large 62 million tonne Emba Derho VMS deposit set to become the company's processing hub in the region.
The Emba Derho VMS deposit is located approximately 12 kilometres northwest of the capital city of Asmara. A total of 70,000 metres of drilling was completed at the deposit, for a current indicated resource of 62.48 million tonnes, consisting of a gold oxide cap of 3.5 million tonnes at 0.84 grams per tonne (g/t) of gold, a zinc-rich primary zone of 20.55 million tonnes at 2.35% zinc, and a copper-rich primary zone of 38.43 million tonnes at 1.02% copper.
Optimization studies analyzing the blending of material from the Emba Derho, Adi Nefas, Gupo and Debarwa deposits are also being evaluated in the pre-feasibility study.
Another catalyst for Sunridge's re-rating, is that the company recently finished an additional 20,000 metres of drilling to bring the indicated resource at Emba Derho into the measured category, so as to support further feasibility studies. A new resource estimate at Emba is also due in the first quarter.
A 90-hole drill campaign at the Gupo gold deposit has also been completed. So far, results from 36 of the holes have been released, with early indications suggesting Sunridge will be able to convert the existing 189,000 ounce inferred resource to the indicated category, and potentially increase the total resource to 300,000 ounces of gold.
Ocean also noted in its report that recently-instituted UN sanctions on Eritrea will not affect the mining industry.
In October, draft UN reports were released proposing a tightening of sanctions in Eritrea, including a ban on foreign investment in the country's mining industry. This month, however, the UN approved watered-down sanctions that require mining companies "to exercise vigilance to ensure funds generated from mining are not used to destabilize the region".
"As a result mining will be able to continue to flourish in the region, with the government of Eritrea as a strategic partner in mining projects this is assisting companies to develop the valuable industry," Ocean said.
The report brings Nevsun Resources (TSE:NSU) as an example of how profitable mining in Eritrea can be. Throughout the year, this company has ramped up operations at its Bisha mine, and has generated US$242 million from operating cash flows for the nine months ending in September. Nevsun also has low operating costs of under $300 per ounce - achieved with the help of Eritrea's government, said Ocean.
Sunridge has a market capitalization of C$40.5 million, a treasury position of US$13 million, no debt on its balance sheet, and an enterprise value of C$27.5m for a growing resource of 1.28 billion pounds of copper, 2.5 billion pounds of zinc, 1.21 million ounces of gold and 31.8 million ounces of silver.
"On an asset valuation basis Sunridge is the cheapest East African base/precious metal development company with an EV/EqAu multiple considerably lower than its direct peers," the Ocean report concluded.
"The location of all of Sunridge’s assets are within close proximity to the capital city of Asmara, and pending feasibility studies are due in Q1’12 on all of Sunridge’s advanced projects. Entry to Sunridge at this valuation offers significant upside potential throughout 2012."
Sunridge was changing hands Thursday afternoon at around 35.5 cents, up around 1.43 percent as of 12:32pm ET.
Currently, the company has four advanced projects and "blue-sky exploration potential" for its targets of Adi Rassi, Torat, Dairo Paulos and Adi Mussa. The Adi Rassi and Torat targets are located approximately four kilometres east of the Debarwa deposit.