James Flanigan from June 19 2012....
Despite the general market Newstrike Capital has had a very successful year in terms of drill results at its Ana Paula Project in Guerrero, Mexico.
The company is currently the largest landholder in the GGB with over 88,000 hectares of land surrounding both Goldcorp ($48 B market cap) and Torex Gold ($500 M market cap). NES acquired the Ana Paula project (7,600 hectares) for $2.1 million dollars from Goldcorp last year and it was already thought to contain 2 - 2.5 million ounces of low grade bulk tonnage gold near surface. Goldcorp originally identified a 1 km by 2 km surface gold anomaly.
Newstrike has been expanding on Goldcorp's previous exploration with absolutely eye-popping results which are as follows:
1. 214 m @ 3.00 g/t au
2. 275 m @ 1.43 g/t au
3. 231 m @ 7.51 g/t au
4. 112 m @ 2.51 g/t au
5. 190 m @ 3.52 g/t au
6. 116 m @ 4.71 g/t au
7. 120 m @ 4.60 g/t au
8. 52 m @ 6.9 g/t au
9. 119 m @ 3.76 g/t au
As stated by V.P. Exploration Gillian Kearvell in the September webcast, all of these drill holes are situated within the breccia which is currently defined by dimensions of 250 m strike X 150 m width X 250 m depth. Based on these current dimensions alone, Newstrike is looking at a resource of potentially 2.5 million ounces at a grade of about 3.0 g/t au. What has to be understood is this breccia resource is on top of the initial potential for close to 3 million ounces of lower grade bulk tonnage gold and the breccia is still open in most directions as well as to depth.
Currently there is no other junior explorer in the market which boasts these type of drill results over long intervals such as these, nor even comes close. Trelawney (TRR) has several long intervals but most of them come in at the 1 - 1.5 g/t au range over 250 - 300 m lengths. Gold Canyon (GCU) exploring in Red Lake also reports very long intervals of gold but like TRR they also average the 1.0 - 1.5 g/t au range. The only drill results that can be compared to NES' grades over these intervals are companies which have already been acquired for over $1 billion dollars like Aurelian Resources ($1.2 B+) and Ventana ($1.6 B).
NES has a very lean share structure with only 102 M shares outstanding and 112 M shares fully diluted, giving it a very cheap $250 million dollar market cap currently despite all of the discoveries made this year. In my opinion the market is giving investors a second chance at picking up NES at these levels for those who did not get in ahead of the initial run up to $3.37 this August. Newstrike has plans to add 2 drills in addition to the 2 drills already turning for a total of 4 drills on the property by the end of the month. With 4 drills comes the potential for much more activity on the ground as well as more discoveries and I don't believe NES will be ignored by majors for much longer with results like they have been releasing.
The average junior has been acquired for $250 / oz by majors in the past 2 years for high-grade finds based on the acquisitions of Fronteer Gold, Andean Resources, Ventana Gold, Red Back Mining and Richfield Ventures. Based on this metric and Newstrike's market cap of $250 M dollars, the market is pricing in 1 million ounces of gold at Ana Paula. This estimate in my opinion is far too low given the fact that the breccia alone currently has been delineated to the tune of 2.5 - 3.0 million ounces of gold. The low grade halo surrounding the breccia defined over a 1 km strike length (with additional silver grades) also holds potential for 3 million ounces of gold based on Goldcorp and Newstrike's exploration thus far. If we place a conservative estimate on the gold at Ana Paula and use previous acquisition metrics for the value of NES gold, we come up with close to a $1 billion dollar value for NES currently. This may seem ridiculous but let's look at what majors have paid vs. what NES has to better understand this.
AEM bought out Grayd Resources last month for $220 / oz for their 1.2 Moz La India Deposit in Sonora Mexico which averages 0.7 g/t au. Based on Newstrike's 2.5 Moz of low grade bulk tonnage Goldcorp believed they had at Ana Paula (before selling to NES) this would give us a value of $550 million dollars for the low grade halo at Ana Paula alone.
Now onto the high-grade breccia...
Based on a $250 / oz average value for high-grade resources (Ventana - $400 / oz), Andean ($1,000 + / oz), Fronteer ($400 / oz) NES' 2.5 million ounces in their breccia would have a value of $625 M dollars. $625 M for the breccia + $550 million for the low-grade based on comparative buy-outs at much lower gold prices would give NES a total value of $10.50 a share, or more than 4 times the current price based on discoveries made to date.
In additional to all of this potential, Ana Paula is hardly the tip of the iceberg. NES has also identified through an airborne magnetic survey done this year the potential for the mineralization to continue to the north over 10 km at their next target Apetlanca which shows very similar intrusions.
The markets are turbulent but that is not stopping gold companies from acquiring juniors, large and small. There have been over 6 acquisitions/mergers in the past 2 months alone by gold companies and they are not treating this market as a time to hunker down and hold cash but rather as a great opportunity to pick up advanced stage explorers for bargain prices. Discoveries like the ones at Ana Paula are not made very often and those who don't do the due dilligence now will regret it later as majors will not allow NES to continue to make discoveries and make it a more expensive acquisition for them.