Expectations for 2013 – Colt Resources
By Steven Ralston, CFA
Colt Resources (V.GTP) is a junior gold exploration company with two advanced stage projects in Portugal: the Boa Fé gold project and the Tabuaço tungsten project. An updated NI 43-101 compliant mineral resource estimate on Boa Fé is expected during the first quarter, and during the second quarter, the PEA on Tabuaço is expected to be completed. The company continues to be very successful in obtaining equity capital to finance the exploration and development of these gold and tungsten projects.
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During 2012, the drilling campaign at Boa Fé and Montemor accelerated resulting in 14 announcements of drilling results for Boa Fé gold project (Chaminé, Banhos, Braços, Casas Novas and Covas deposits) and the Monfurado gold deposit in the Montemor concession. In July 2012, the initial NI 43-101 compliant resource estimate for the Chaminé and Casas Novas deposits was announced. Indicated resources are estimated to be 214,000 ounces of gold and inferred resources 15,400 ounces of gold. The final Environmental Impact Assessment (EIA) was completed in September. In December, Colt Resources announced the discovery of gold mineralization below the near-surface gold deposit at Chaminé. The results of the deep drilling required a reevaluation of our interpretation of the model of gold deposits along the Boa Fé shear zone. We believed, as did prior lease owners, that the gold mineralization was confined to near-surface kinks and folds of the Boa Fé shear zone. However, the assay results from these two deep drill holes now indicate that stacked layers of kinks and folds contain additional gold deposits. It is now probable, as management suggests, previous exploratory work has “only tested a relatively minor part of a potentially larger mineralized zone.” The next phase will include the application of downhole geophysical techniques to better target further deep exploratory drilling.
In 2012, the aggressive drilling campaign at Tabuaço resulted in six announcements of drilling results, including the discovery of mineralized skarn at Aveleira and the Gap between the skarn deposits at São Pedro das Águias and Aveleira. The application for an Experimental Mining License for Tabuaço was submitted to the DGEG in August, and in October 2012, the resource estimate of Tabuaço was updated increasing the indicated resource estimate of contained metal by 85.2% from 440,000 to 815,000 MTU WO3. Expansion of the entire resource, as well as upgrading the quality of a portion of the resource from the inferred to the indicated category, contributed to the incremental 375,000 MTU WO3 rise in the indicated resource estimate. In response to the updated resource estimate, we raised our price target to $1.70.
Also in 2012, Colt Resources entered into a joint venture with Contécnica to further develop the Penedono gold project. Contécnica will earn a 51% stake in the Penedono concession by investing at least €2.0 million in the project over three years while Colt retains a 49% stake.
This year, an updated NI 43-101 compliant mineral resource estimate is expected for Boa Fé and Montemor during the first quarter of 2013, which is expected to include recent drilling results at Chaminé, Casas Novas, Ligeiro, Braços and Banhos and also possibly Monfurado. In 2012, the drilling at the Banhos gold deposit extended to the North West beyond the scope of historical drilling. Given these incremental drilling results, there is significantly higher probability that our valuation of the Banhos deposit will increase when the updated NI 43-101 compliant resource estimate is released. In addition to further assay results from drilling programs to confirm and advance the gold mineralization associated with shallow dipping intrusive units, we look forward to a better defined interpretation of the deep deposits occurring in the stacked layers of kinks and folds.
During the first quarter 2013, Colt Resources should receive final approval for a Trial Mining License (aka Experimental Mining License) at Tabuaço. Work on a preliminary economic assessment (PEA) has already begun, and management anticipates the PEA to be completed during the second quarter. Thereafter, management plans to conduct a pilot mill test on approximately 20 metric tons of scheelite ore. Also, the potential production of fluorite concentrate as by-product will be examined. Management continues to be engaged in discussions with undisclosed potential partners to bring a mine to production at Tabuaço within two or three years. We would expect that the development of Tabuaço would be structured in a manner similar to the Penedono joint venture with the partner providing capital and further developing the project in order to earn a substantial stake in the concession.
The non-brokered private placement announced on January 7, 2013 should provide Colt Resources with sufficient capital to fund its projects for the next few quarters.
We reaffirm our Outperform rating and price target of $1.70, which is based on an estimated share value of attributable resources indicated by Colt’s initial NI 43-101 compliant mineral resource estimate and certain noncompliant historical resource estimates. We consider our valuation model to be conservative in that it also includes prospective developmental costs at Boa Fé and Tabuaço.
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