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With that being said some of the biggest percentage gains are likely to be generated by gold explorers/developers with projects with all-in sustaining costs (AISC) above US$1,000 that look much more attractive at a US$1,400 or US$1,500 gold price as opposed to a US$1,200 or US$1,300 gold price. With gold prices rising and project economics suddenly becoming more compelling project construction financing is likely to become more available and cheaper.
A gold developer that I have owned since the end of last year, Eastmain Resources (TSX:ER), is one of these developers whose project economics look much different at US$1,400 per ounce gold vs. the US$1,250 gold price they used in a 2018 PEA for their flagship Eau Claire Project in the James Bay Region of Quebec. The 2018 PEA for Eau Claire showed a 27% after-tax internal rate of return (IRR) using US$1,250 gold price and $.77 CAD/USD exchange rate assumptions. Assuming the exchange rate stays about the same at a US$1,400 gold price the after-tax IRR jumps to nearly 40%. This is a significant improvement in project economics and one that makes Eau Claire a compelling asset for Eastmain to advance to the feasibility study level.
Without even mentioning Eastmain’s other projects (Eastmain Mine and Eleonore South JV), Eastmain is currently being valued at about 10% of the project NPV (C$350 million, NPV(5)) for Eau Claire using today’s gold price and USD/CAD exchange rate. This means that Eastmain shares are extremely undervalued and the market began to catch on to this undervaluation on Thursday and Friday as ER shares jumped from $.115 to Friday’s high at $.175 before settling at $.16 to finish the week...
For ER to simply get back in line with its peer group average in terms of enterprise value/ounce of gold (measured, indicated, & inferred) its share price needs to rise to ~$.24 per share. Moreover, one could argue that Eastmain should command a premium valuation considering its jurisdiction and the location of its project in a prolific mining region of Quebec (ranked #4 in the world by the Fraser Institute). It’s also worth noting that Eau Claire boasts a blended average head grade of nearly 5 grams/tonne gold with 95% gold recoveries.
Eastmain has spent much of the last eight months drilling its new Percival discovery which is 14 kilometers from Eau Claire (within trucking distance to the main Eau Claire deposit) on the same property (Clearwater).
The initial discovery holes were extremely promising (Hole ER18-822 1.46 g/t gold over 78 meters, and hole ER18-823 2.35 g/t gold over 87 meters), however, thus far Eastmain hasn’t managed to follow up on its early success at Percival.
In Eastmain’s most recent news release on Percival drilling Eastmain noted that it has identified three main east-west trending zones of mineralization which encompass 650 meters of east-west strike length with a north-south width of 250 meters. The mineralization appears to converge as the mineralization continues east and I expect Eastmain to conduct a follow-up drill program at Percival in July or August. The point of this next phase of drilling will be primarily to continue stepping out and following the mineralization to the east.
I own Eastmain shares and it was one of my CEO.ca Stock Picking Contest picks at the beginning of the year.
Caldera