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Edgewater Exploration: Acquiring and Advancing Undervalued Gold Assets
Edgewater Exploration EDW
Share Price… $1.29
Shares Out… 49.5M
Fully Diluted… 65M
Cash… $16 million
Market Cap … $59 million
Retail Float… 16.8M shares
Edgewater Exploration is a gold exploration company that has it all. Top notch quality management headed by George Salamis, an advanced stage 1M oz gold project in Corcoesto Spain, a blue-sky opportunity with 40kms covering the some of the most prospective areas of the Bibiani Shear Zone in Ghana south of Red Back’s 5M oz Chirano Gold Mine and a solid partner in Kinross backing them up. The Enchi Gold Project is considered by many to be one of the better gold exploration projects in Ghana.
When Edgewater announced 12,000 meters of drilling underway in early December at Enchi in Ghana, this is the event that kicks off Edgewater’s plans on materially adding value to their projects in Spain and Ghana over the next couple years. Edgewater has serious potential with targets of +2M oz’s of gold in Spain and eventually +3M oz’s in Ghana in low cost bulk tonnage open pit projects. Edgewater’s current value lies in its 1.2M oz Corcoesto gold project which has significant upside as a development story. The underlying value and growth potential for EDW is outlining a multimillion ounce gold resource on in Ghana. Edgewater is poised to add material value from two projects going forward in 2011.
First they have a low risk 1.2M oz development project in Corcoesto Spain with significant upside. It is open in both directions along strike and at depth and the target stated by management is a global resource of at least 2M oz with the focus on starting an open pit mine and underground development to follow. At the same time Edgewater has a joint venture with Red Back (Kinross) where they are developing an initial resource on what was Red Back’s top exploration property until they found the +5M oz Chirano 70km to the north along the same regional shear zone. If Edgewater can delineate significant resources on their 2 projects over the next couple years that meet or exceed these targets. Edgewater has one of the best low risk growth profiles for a junior gold exploration company on the market.
Edgewater has assembled one of the best teams
When it comes down to investing in exploration companies, a lot of success is dependent on management, especially when it comes down to adding material value and growing the company from a medium cap explorer to mid tier mining company producing 250,000+ oz’s of gold a year. Obviously the merits of the project are what attract any investor to a company, butmanagement is the catalyst to adding value to a company and its portfolio of projects. Edgewater has put together a team of the finest that cover all aspects of a junior exploration company.
The backbone and face of any coherent team in a mining company is the CEO, and Edgewater has one of the finest in George Salamis. Mr. Salamis has held senior management positions at both Placer Dome and Cameco and has formed and managed several successful junior mining companies. Mr. Salami’s key attribute for Edgewater other than extensive experience in both junior mining and top tier mining companies is his experience in advising mergers and acquisitions in the resource industry, a skill that will play an important role in bringing shareholder value to EDW if they deliver on their plans in Spain and Ghana.
EDW has a top exploration manager in Greg Smith who is experienced in the management of work programs that were successful in outlining 10M+ oz gold deposits and has experience in all aspects of exploration from outlining initial targets to delineating material deposits. Edgewater also has a director who has one of the best recent track records in the industry taking Brett Resources from a 1.8M oz gold deposit into the 6.7M oz world class deposit it is today. Having directors with experience in delineating world class gold deposits not only speaks to expertise EDW has on board in its management team and directors, but what management and directors think of EDW’s assets and the chances of being developed into world class gold deposits.
Edgewater has the crews that came with the projects; having experienced crews in both regions that are familiar with the projects cuts down time on working on projects and cuts down the learning curve when it comes to exploration and drilling techniques for a given project. It also leads to less lead time getting crews mobilized and spending extra time and money training new crews in both countries. Edgewater’s management, from exploration managers and the crews working the projects to directors and CEO of the company; possess the skills to outline multimillion ounce deposits and the track record to back it.
Edgewater has the right industry partners when it comes to a solid financial backing commitment in Featherstone Capital including Featherstone members sitting on the board. Featherstone Capital is a solid industry partner to be associated with and have financed many successful junior mining companies and the projects being developed and can also play a role in future key acquisitions for the company.
Edgewater has everything in management that an exploration / development company needs to succeed.
- Experienced country project managers and teams that are familiar with the projects in each country.
- Directors that have access to capital with Featherstone Capital and a solid industry reputation
- An exploration geologist that has experience outlining +10M oz gold deposits
- A director who brought Brett Resources from1.8M oz’s to 6.7M oz
- Management with experience handling corporate acquisitions and takeovers
- A CEO that has held senior positions with some of Canada’s top mining companies
Edgewater has the team in place to take both projects in Spain and Ghana forward and add material value for shareholders and millions of ounces to their inventories.
The Corcoesto Project is an advanced stage project in northwest Spain that lies within the historic Malpica–Tuy Gold Belt which has been exploited since ancient times as long ago as the Romans. The area is one of the most mining friendly regions in Spain and has excellent infrastructure including a power line running across the property. Corcoesto is a series of seven major gold vein systems that trend in a northeasterly direction that are all open along strike and at depth including the 1.2M ounce resource. With high grade being discovered at depth in widely spaced holes, makes Corcoesto an attractive open pit starter mine with high grade underground production potential for years to come if gold prices stay elevated through this decade.
Edgewater has initiated 12,000 meters of drilling in Q4 of 2010 which will lead to a new resource calculation in the first half of 2011 and a scoping study to follow by the end of the year. EDW has an aggressive goal of upgrading the quality of the resource from inferred to indicated and an overall goal of adding another 800,000 ounces to the global resource at Corcoesto. 1.2M oz to 2M oz is a material increase and Corcoesto has already demonstrated a solid growth profile from a modest 320,000 ounce deposit when Edgewater acquired it to the robust 1.2M oz deposit it is today.
EDW is confident that they can continue to increase this resource to a 2M oz deposit with a good portion of it being amenable to bulk tonnage open pit recovery. At this point in time it is too early to say how much of the resource would be in the open pit outline, although Corcoesto is a high potential shallow open pit mine with nearly 700,000 oz’s of the 1.2 M ounces so far delineated lying above the 200 meter level indicating that the majority of the 1M once resource can be extracted by open pit mining methods.
The Corcoesto Gold Deposit
- Measured & Indicated of 315,000 oz’s @ 1.73 g/t au
- Inferred resource of 885,000 oz’s of gold at 1.66 g/t au.
The quality and consistency of the resource is very good. If you increase the cut-off of 0.65 g/t to 1 g/t the M & I still comes out at 262,000 oz’s of gold. Corcoesto only loses 16% of the resource when increasing the cut-off grade by 54% which indicates a very high quality resource with continuous and consistent mineralization. The Corcoesto grade lies in the sweet spot of leveraged gold plays grading between 1 g/t and 2 g/t gold. At well over 1.5 g/t project, at $1500 gold the ore is worth $75 a ton which indicates very good economics for an open pit project.
What makes Corcoesto such an attractive project?
- Favorable open pit grade at +1.5 g/t gold
- Low strip ratio
- Amenable to conventional milling and cyanide leaching with 90% recoveries
- Situated in a pro mining region
- Located 35km from a deep water port
- Excellent infrastructure including roads and power
- Workforce readily available from the Port City of La Coruna
- High grade underground potential
The Corcoesto Project and its growth potential justify Edgewater’s market cap alone and is a very attractive project going forward with open pit production potential in a mining friendly jurisdiction. With Corcoesto being valued at $50 per ounce, it represents a good value buy with a great growth profile going forward and a project that has early indications of great economics with high leverage to current gold prices.
Edgewater will have a very good news flow for the first half of 2011 with 3 dill rigs on the project drilling through 12,000 meters of earth. With a steady stream of news flow coming from Spain, EDW share price should do rise on positive results as well as anticipation of a new resource calculation and a positive scoping study in Q3. The scoping study will give initial indications of the project economics at Corcoesto.
Edgewater is worth its price on its Spain project alone.
The Enchi Project, Ghana (45.9% Edgewater / 44.1% Kinross/ 10% Ghana)
The blue-sky potential for Edgewater Exploration lies in the Enchi project in Ghana. Currently there is no resource on the project but over 180 drill holes have been drilled on the project in a scatter-gun type approach in widely spaced holes to get an idea of the extent of the mineralization. One prospect has returned 80 of 112 holes with significant intercepts grading better than 1 g/t. Edgewater announced 12,000 meters of combined RC and diamond drilling to work towards an initial resource target of 1 million ounces between the 2 drilled prospects.
Some background on Enchi
Enchi was Red Back’s top exploration property in Ghana before they made their discovery at Chirano 70km to the north. The Enchi Project is in the same geological setting as the 5M oz Chirano and has 16 separate gold mineralized zones that represent several shallow open pit targets and when added together has the potential to outline several million ounces with near term production potential. Both Enchi and Chirano are located along the Obuasi-Enchi lineament which is a major east-west crustal scale deformation zone which hosts Anglo Gold Ashanti’s 40M oz Obuasi mine.
Currently Chirano is producing close to 250,000 oz’s per year which makes an ideal model to follow for eventual production at Enchi. Enchi is a district scale project in Ghana covering 40km of prime exploration land in the southern part of the Bibiani Shear Zone. Known geochemical anomalies cover the entire 40km length of the shear zone. Edgewater is at the early stages of defining of what could be a very large gold resource along the entire belt of its property.
The southern part of the Bibiani Shear Zone has many localized faults that splay off secondary faults which cut off the Bibiani Shear where gold deposits along these faults are found in a favorable environment for deposition. The amount of shearing that runs through Enchi indicates widespread gold across the entire property representing numerous gold zones prospective for gold mineralization. 2 regional targets Edgewater is delineating a resource lie along the Bibiani Shear (The Boin Gold Zone) and the Nyamebekyere Shear (The Nyamebekyere Gold Zone) which run parallel each other almost the entire length of the property. The Enchi Gold Project has huge exploration upside with over 45 drill holes and trenches with widths over 10 meters and greater than 1 g/t gold have never been followed up on.
The Nyamebekyere and Boin Gold Zones
Edgewater is focusing its initial resource delineation efforts on 2 gold zones with past drilling in widely spaced holes from 150 to 500 meters apart on both the Boin and Nyamebekyere Gold Zones returning encouraging results with 183 RC drill holes totaling almost 18,000 meters have been completed on the property which gives Edgewater a great base to delineate an initial resource by summer / fall of 2011. Edgewater has 2 diamond rigs arriving this quarter with a 3rdon the way so there will be lots of news coming from Ghana this year.
Nyamebekyere Gold Zone
Nyam is a 1600 meter gold zone that is part of a 15km strike of continuous gold prospects. Shallow RC drilling has been conducted over the entire strike length of this project to depths of only 80 meters hitting mineralization across the extent of the property. Nyam has had 71 holes drilled to date totaling 4,658 meters with drilling encountering economic widths of 10 -20 meters with consistent grades between 1 and 3 g/t gold. The property has 12 known gold deposits. Nyamebekyere has over 1 km of continuous mineralization drilled with no 43-101 resource which will be the focus of an initial resource calculation for this large and extensive gold zone.
Drilling highlights include…
- 11 meters at 3.60 g/t au
- 16 meters at 1.83 g/t au
- 16 meters at 1.66 g/t au
- 9 meters at 3.07 g/t au
- 9 meters at 2.77 g/t au
Boin Gold Zone
Is a 4.5 km gold in soil anomaly zone with drilling to date intersecting mineralization over a 3.6km strike length and has identified 2 sub parallel zones with intercepts up to 15 meters at 3 g/t au and 12 meters of 1.6 g/t au. The Boin Gold Zone mineralization has been documented over 10km associated with the Bibiani Shear. 13,000 meters of RC drilling has been completed on the Zone in 112 holes with 80 grading better than 1 g/t gold. With a major resource planned for 2011.
Drilling highlights include…
- 33 meters at 2.1 g/t au
- 30 meters at 1.92 g/t au
- 21 meters at 2.56 g/t au
- 13 meters at 4.11 g/t au
- 20 meters at 1.57 g/t au
Both the Boin and Nyamebekyere Gold Zones have received extensive drilling in widely spaced holes and provide Edgewater a great base to develop an initial resource after drilling 12,000 – 15,000 meters in 2011. Edgewater’s initial goal for a resource base in Ghana is 1 million ounces which is realistic given all the historical data and past drilling to go on and the very large and extensive mineralized systems on the property. EDW also has other highly prospective targets that were the focus of this summer’s exploration plans including a major anomaly in along the West Sewum Shear and the Eradi prospect.
The next Obuasi?
The Eradi Prospect is made of 3 parallel gold in soil anomalies with an approximate strike length of 3 km. Eradi covers the Enchi – Obuasi Lineament at the northern part of the property. The Enchi – Obuasi Lineament is associated with Anglo Gold Ashanti’s 40 M oz Obuasi gold mine 100km to the east. Only 2 trenches have been dug on the property with the Eradi central trench assaying 37m at 1.47 g/t au. The Eradi prospect represents on of the best undrilled projects on the property and could be the best location to find Obuasi style mineralization on the property. Trenching and drilling are planned for 2011.
The Enchi Project is littered with gold from one end of the 40km property to the other and is one of the most extensive mineralized properties in Ghana. The market is currently giving little or no value to Enchi, but literally has multimillion ounce potential across the entire property. EDW will be locating the best zones and defining initial resources for several shallow open pit mines in similar nature to the Chirano operation with plenty of potential of finding the ‘big one’ in a World Class Obuasi style deposit.
Some benefits to success at Enchi
Edgewater is earning an interest in Enchi from Red Back by spending $5.0M in exploration expenditures within 26 months of the deal. Once Edgewater has earned in, the project will be carried forward on a joint venture basis with additional expenditures made on a pro-rata basis. What makes this deal so enticing is that Edgewater has one of the best partners in the business in what is now Kinross and upon delineation of a 3M oz resource in the measured and indicated category, Red Back has the option to exercise 5M worth of options in Edgewater at 0.50 and a $1. This would increase Kinross holdings in Edgewater to more than 10% of the company if the share structure remains the same. With Kinross owning half the project and 10% of EDW, it would put Enchi very high on K’s list of projects in the pipeline of exploration projects.
If the kind of success EDW has demonstrated at Corcoesto is any indication of what Edgewater is going to do in Ghana, I am confident that Edgewater will meet, if not exceed their initial resource target of 1 million ounces in Ghana.
Edgewater fits the profile of an eventual takeover target
Gold may eventually end up in a supply demand crunch like other commodities. Governments continue to increase the pace of acquisition of the precious metal as a strategic hedge against US monetary policy. This type of action to hoard gold could lead to supply problems of the yellow metal over the short term with senior producers scrambling to ramp up production. With the current elevated prices in gold making low grade bulk tonnage targets lucrative mining operations and prices set to continue to rise over the coming years, a possible demand crunch could appear as governments continue taking physical delivery of the yellow metal. Producers will be in a need to ramp up supply over the short term and the best projects that have the most leverage are these types of projects that Edgewater is developing.
The best projects to deliver fast track production capability are the open pit projects. They are low cost and low risk as a mining operations and a million ounce open pit deposit has the potential to be at least a 100,000 – 200,000 oz per year producer over 5 – 8 years and has a low time to production timeframe once the development is initiated. The deposits that are seen to have the greatest value and leverage to current prices are the 1 g/t to 2g/t open pit operations. At $1500 gold these type of projects value per ton is between $50 and $100, which is an extremely lucrative mining operation for an open pit scenario.
Currently EDW has 1.2M ounces and valued at $60M market cap which is a good value for a million ounce better than 1 g/t au deposit that has open pit potential. This currently gives EDW an in-situ value of $50 per ounce. The underlying value for Edgewater is seeing forward a couple years when EDW delivers on their plans for both Corcoesto and Enchi. If they come close to their initial targets for 2011 of a 1M oz resource for Enchi and a possible 2M oz’s and a scoping study for Corcoesto. You are paying $20 per oz looking forward to late 2011 early 2012. Both Enchi and Corcoesto grade well above the 1 g/t mark, which makes them that much more attractive as open pit projects amenable to conventional mining processes. The multimillion ounce open pit potential of Edgewater’s projects makes them some of the best on the market when looking at current value and future growth. If EDW comes close to delivering on their targets this year and remain consistently valued per at $50 an ounce then you can expect a share price in excess of $3.
With 2 projects that have significant potential for expansion, Edgewater is now poised to capitalize adding material value to their inventory of resources and being an attractive takeover target with 2 projects that have open pit potential. They have experienced teams working on both projects in mining friendly countries and Mr Salamis experience will help bring material shareholder value to Edgewater in the scenario that they become a takeover target by a producer that wants to add some quick production ounces. With a near term open pit mine capable of better than 100,000 oz ‘s plus a multi million ounce resource Ghana that has Chirano style potential, Edgewater will be an attractive target for any gold company wants to add both inventory and near term production potential.
Multi million ounces mines in Ghana are worth BILLIONS!!!
Ghana and other West African countries are top gold countries because they are thought to make up part of the same greenstone belts that run across the northern part of South America which are host to several rich gold deposits. Geologically these deposits make up the same belt and host World Class Deposits on either side of the Atlantic and are some of the most prospective places in the world to explore for gold. Ghana is Africa’s second leading gold producer with 2.9M oz’s produced annually and is taking up the continued slack from declining South African production. Being in a politically safe place to invest and a top African producer, a multimillion ounce gold project in Ghana will command a premium as proven by the takeover of Red Back by Kinross.
Multi million ounce mines Ghana are worth billions and Edgewater has the best district scale project in Ghana. The $7.2 billion Kinross paid for Red Back Mining which represents 500,000 ounces of production is a very steep price although it does not represent true ounces in the ground. Red Back has 2 producing mines in the Chirano Mine in Ghana and the Tasiast Gold Mine in Mauritania. Neither mine is in full production yet but both are expected to produce around 250,000 ounces a year each at $335/oz cost for Tasiast and a $475/oz cost for Chirano in 2011. One can infer at least a $2.2B - $3.2B price for Chirano which leaves a potential takeover price for EDW in the billions if they delineate a multimillion ounce resource at Enchi.
Top producing companies who want to fast track their production profile look to Ghana as proven by how fast Chirano has gone into production. Kinross looking to ramp up production in Ghana will look to EDW first, now that they have the Chirano mine, economies of scale would make a great fit to ramp up production once all the bugs have been worked out of Chirano. If Edgewater can prove up a multimillion resource at Enchi, then the project in Ghana alone will justify a hefty market cap with the other multi million ounce advanced stage project in Spain, a sweetener to any potential deal for a producer looking to add ‘fast ounces.’
Edgewater Exploration is rated as a strong buy going forward with solid low risk growth projects that will add material value to EDW going forward in 2011. They have the financial wherewithal to see the projects through, a solid partner in Kinross and are exploring and delineating a multimillion ounce resource in Ghana which will command a premium at market. Edgewater also has the key ingredient management and expertise to see this vision through which is 2 multi million ounce resources with open pit economics in their inventory.
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