Summary Analysis by The Sophisticated Investor
The company also owns the Bronzewing 2Mtpa processing facility and associated infrastructure. This infrastructure will allow for a significant reduction in capital expenditure when a decision to commence production is made in the future.
Analyst Comment: The Western Australian gold fields have a history of reviving operations that were closed as they were deemed no longer economical. A key theme regarding failed restarts has been the new operator did not clearly identify all of the underlying reasons why the project closed and did not have a sufficient mine life.
Echo Resources has learnt from other operators' mistakes, and does not look likely to repeat them, as they have set upon an aggressive three pronged exploration strategy targeting an increase to the current mine life (reserves), and higher grade (target +2g/t Au) compared to the historical Bronzewing operation (1.5 g/t Au), before they consider re-commencing production.
Exploration - Exploration results to date have been impressive, particularly at the historical Orelia deposit (as highlighted above), which signals a potential shift from the historical bulk tonnage operation, towards a slower, more selective, higher grade operation.
And whilst the on-going exploration program looks likely to increase the size and grade of the reserves when updated later this year, it is the "Blue Sky" exploration potential that offers the greatest long term upside in the company's share price. The company is currently prioritising key targets with the inaugural drill program to test this potential to commence later this year.
Low Capital - When a decision to recommence production is made, it will be at a significantly lower capital cost compared to the industry average (+$100m), as it has been estimated the refurbishment costs to recommence production will be $12.5m (Echo - Julius DFS). This is due to the significant existing infrastructure which includes a 2Mtpa processing facility, camp, power, and other essential items required to commence a mining operation.
Valuation: We initiated coverage on Echo Resources with a target valuation of $0.34 / share (current share price $0.12 / share).
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About Echo Resources Limited
Echo Resources is an ASX-listed gold exploration business with a large and highly prospective ground position in the Eastern Goldfields of Western Australia. We are focused on applying modern exploration methods to establish a high grade gold resource and reserve base at our 100% owned Yandal Gold Project.
About The Sophisticated Investor
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Adam Kiley trading as The Sophisticated Investor ('TSI'), (AR No. 458224), is an authorised representative of Intelligent Financial Markets Pty Ltd (AFSL No. 426359). The information contained in this communication is intended as general advice only. Your personal objectives, financial situation and needs have not been taken into consideration. Accordingly, you should consider how appropriate the advice is (or is not) to your objectives, financial situation and needs before acting on the advice. The information in this communication should not be the only trigger for your investment decision. We strongly recommend you seek professional financial advice whenever making financial investment decisions.
Conflict of interest
TSI does and seeks to do business with companies featured in its articles and videos. As a result, investors should be aware that TSI may have a conflict of interest that could affect the objectivity of some articles or videos. Investors should consider TSI articles and videos as only a single factor in making any investment decision. The publishers also wish to disclose that they may hold stock in some companies featured in their articles and videos, and that any decision you make to purchase the stock of a company TSI profiles should be made only after you have initiated your own enquiries as to the validity of any information contained in those articles and videos.
TSI will only initiate coverage of a company that passes our internal investment checklist. Once a company has passed this checklist, we will initiate coverage of that company and follow up with ongoing updates and commentary on its activities. Articles and videos produced and published by TSI are NOT Research Reports in terms of ASIC Regulatory Guide 79.
The Sophisticated Investor
Echo Resources Limited