Emerita Resources Corp. (EMO:TSX.V; EMOTF:OTCMKTS;LLJA:FSE) just released a maiden resource on IBW in Spain, which "puts it in the league of high quality projects advancing toward production," reported Clarus Securities analyst Varun Arora in a May 24 research note. Based on the resource, Clarus revised its estimates on IBW, and this led to a lower target price on Emerita of CA$3.75 per share, down from CA$4.
"We believe the maiden resource confirms our view that IBW will be a mine with our estimated CA$730 million (CA$730M) net present value," Arora wrote. The resource "is comparable in size and grade to current advanced stage polymetallic projects that are trading at seven-plus times Emerita's CA$110M market cap."
349% projected return
Given Emerita's current price is about CA$0.53 per share, Clarus expects a significant potential return for investors, of 349%, Arora noted.
The Canada-based exploration company is rated Speculative Buy.
About the resource
The global resource at polymetallic IBW, or Measured and Indicated (M&I) plus Inferred resources, is 18,800,000 tons (18.8 Mt) of about 8% zinc equivalent, reported Arora. This is based only on the Romanera and Infanta deposits. Compared to its historical counterpart, the new resource encompasses 56% more tons.
"With about 75% of the resource in the Measured and Indicated (M&I) category, we believe this is a robust resource," Arora commented.
As such, Emerita could bypass doing a preliminary economic assessment and move directly to a prefeasibility study (PFS), the analyst continued, once metallurgical studies are finished and provided infill drilling is sufficient. The PFS could be done in Q1/24 given metallurgical work is on track for completion in Q4/23.
Overall grade a miss
Arora pointed out that the grade of the global resource is lower than expected, at 8.1% versus 10%. This is due to materially lower gold recoveries of 20% assumed for calculating the zinc equivalent grade and due to Clarus' "aggressive" estimated grade for the Infanta deposit."
Where there is upside
Additional upside exists in several aspects of the project, and Arora presented them. One is in gold recovery optimization, which, he noted, ongoing metallurgical studies would confirm.
The gold recovery assumption "is conservative," added the analyst, and "represents an important resource growth opportunity at Romanera with potential for improving the overall resource grade towards 9%-plus (incremental margin of US$30 per ton; based on 50–60% gold recovery)."
There also is potential to add to the IBW resource the tons, as much as 30 or more percent, excluded from the maiden version because of the conservative recovery assumption.
What's more, Arora noted, Romanera and Infanta remain open for further expansion, and El Cura, where drilling recently began, offers additional resource optionality. (Infill and expansion drilling continues at IBW with six rigs active.)
| Want to be the first to know about interesting Gold, Base Metals and Silver investment ideas? Sign up to receive the FREE Streetwise Reports' newsletter. | Subscribe |
