The junior gold company said it will be focused this year on the first stage of its multi-staged production plan for its Asmara joint venture, namely the high grade supergene copper material that can be shipped directly to the smelter, known as the DSO operations.
Sunridge estimates this small deposit, also known as Debarwa, will cost $32 million to get into production, with the company responsible for two thirds of that budget. Eritrean partner ENAMCO must pay the first $6 million in spending under prior agreements.
About $18 million of the planned budget would be for equipment that would be used for later phases of the Asmara mining plan as well, Coffin, editor of HRA Advisories, noted.
Currently, Sunridge is discussing its financing options with several heavy equipment suppliers for this part of the budget, while also looking at alternatives to finance the "small remaining balance" needed for phase 1A, Coffin said in his research update.
The company is expected to receive a mining permit for the project in the second quarter, which Coffin says has taken longer than expected --- "the norm everywhere these days".
He wrote: "Debarwa is quite small. Once pre-stripping is completed the actual mining would only take 4-5 months from start to finish.
"Because of the high grade nature of the material it should generate enough cash flow in this period to pay off the equipment loan and leave tens of millions for the JV partners."
Indeed, the plan would be to use this money to help finance and provide part of the equity portion for the larger phase II and phase III operations.
Coffin said that if Sunridge can get through phase I without further dilution, while getting the best possible finance terms, it will have a "leg up in terms of earnings", and what Coffin assumes will be highly motivated equipment suppliers eager to finance the larger fleet required later on.
"The key to this will be nailing down both the financial terms and of course the mining license in short order.
"If Sunridge can get the next pieces in place the DSO operation itself should provide the potential for a double or more from the current level. Getting it underway may also speed up the companies that have been kicking tires at Asmara for a couple of years now.
"It could instill a "now or never" mindset in some of the potential bidders that finally gets an offer on the table for the company. On the assumption Sunridge will in fact get a mining permit in Q2, the stock is a buy at these levels," Coffin concluded.
The Asmara project is owned and operated by the Asmara Mining Share Company, which is held 60 percent by Sunridge and 40 percent by the Eritrean National Mining Corp (ENAMCO).