Download our FREE EXCLUSIVE REPORT to learn how 2020 could be a transformational year for Euro Sun Mining’s (TSX:ESM, OTCQB:CPNFF) share price.
After six years of slashing exploration expenditure, major mining companies have turned once more to mergers and acquisitions (“M&A”) to restock their metal reserves.
Since the start of 2018 these firms have spent BIG, investing over $120 billion in takeovers according to GlobalData’s deal database.
Q4 2019 alone saw $22 BILLION in global mining M&A activity. This was a whopping 113.9% increase over the previous quarter and 72.8% over the full-year average.
The numbers are staggering, but the investment rationale is incredibly simple.
As mining companies mine their metals, their reserves get depleted. To restock they have one of two choices.
Either they can spend a lot of time and money on exploration and project development or they can take the much easier route of purchasing, acquiring, or merging with existing advanced projects.
It is no wonder that so many of the world’s top mining firms simply choose to buy their way to success. It is just so much simpler and quicker.
After all, exploration and project development are both costly and enormously time-consuming.
It is also an extremely risky game.
Not only does a mining company have to find a large enough metal deposit to make it worthwhile (e.g. millions of ounces of recoverable gold), it then has to go through the drawn-out process of proving up the resource and securing all the necessary permits to build a mine.
If the numbers do not meet expectations, the project often fails. If there is local political opposition, the project often fails. If a permit is not awarded, the project often fails.
There really is so much that can go wrong in the exploration and project development phase, and this is before work has even begun on constructing a mine!
THIS is why most international miners find acquisitions to be their preferred strategy to increase wealth in the current climate. They buy their way into opportunities that have proven reserves and, ideally, mining permits.
Step forward Euro Sun Mining (TSX:ESM, OTCQB:CPNFF).
Currently valued at only $3 an ounce for its 10 million equivalent ounces of gold, DISCOVER HERE what could trigger a SIX TIMES uplift for Euro Sun Mining (TSX:ESM, OTCQB:CPNFF)
Euro Sun’s (TSX:ESM, OTCQB:CPNFF) flagship asset is the gigantic Rovina Valley gold-copper project in Romania.
This district-scale opportunity is the European Union’s second-largest gold deposit, containing over 10 million equivalent ounces of the precious metal. It has exceptional access to market for its ores and, thanks to Romania’s membership of the EU, is in one of the safest mining jurisdictions in the world.
In November 2018, Euro Sun took a great leap forward at Rovina Valley when it became the first and only private company in Romania to be awarded a FULL mining license.
Taking all this into account, it seems quite incredible that Euro Sun is only valued at the equivalent of $3 an ounce (“/oz.”) for all of its resources. A figure of $20/oz. would seem far more appropriate, opening up the potential for a major rerate in the company’s stock at some point this year.
Remember, Rovina Valley is at an extremely advanced development stage. The market does not yet appear to have woken up to quite how far along it is.
Euro Sun is due to complete its Bankable Feasibility Study by the end of 2020.
This will be a watershed for the company.
Here’s why.
Rovina Valley’s 10 million equivalent ounces of gold are spread across three deposits: the open-pit Colnic and Rovina deposits and the underground Ciresata deposit.
In February 2019, Euro Sun announced its Preliminary Economic Assessment (PEA) for Rovina Valley.
The numbers were highly encouraging.
On a base case gold price of $1,325/oz., with an All In Sustaining Cost of $752/oz., the PEA estimated Colnic would deliver 139,000 ounces of gold a year for 12 years. The projected pre-tax Net Present Value (5) (“NPV5”) of the project at this point was rated at $218.1 million with an Internal Rate of Return (“IRR”) of 15.4%.
Over the following month, Euro Sun’s stock shot up nearly FOUR TIMES.
However, the operative word here is “preliminary”.
The PEA only assessed the economics of the 2.94 million ounce Colnic deposit, based on the $339.7 million construction of a single central processing plant with an initial 12-year mine life.
It did not factor in the 7.17 million equivalent ounces of Rovina and Ciresata.
This is an extremely important point to understand. Construction of the central plant is a one-off cost for the whole Rovina Valley project.
Once complete, the central plant will also be used to process ore mined from the Rovina and Ciresata deposits, extending the mine life to over 20 years.
Better yet, if Euro Sun strikes yet more gold at its neighbouring 42km2 Stanija prospecting license, then the Rovina Valley processing plant could operate well into the second half of the century.
This all bodes extremely well for the results of the Bankable Feasibility Study later this year.
As encouraging as the numbers in the PEA for Colnic were, they have the potential to improve dramatically once the Rovina deposit’s 2.27 million equivalent ounces are added in.
As mentioned, Colnic and Rovina will both be open pit mines. This makes mineral extraction much more cost-effective. Since the central plant is a one-off, front-loaded cost the more tonnes of ore that it can process the more profitable it will become.
The economies of scale for a plant like this are huge.
There simply are not that many gold projects around the world of this scale, which have such great potential to run for decades with relatively little upfront investment.
For one of the majors this could prove to be decisive in deciding whether or not to bid for Euro Sun.
Euro Sun’s Bankable Feasibility study could well deliver a massive increase to Rovina Valley’s NPV5 and IRR calculations, making them highly competitive with global peers.
Factor in further enormous upside from Ciresata’s underground 5.05 million equivalent ounces of gold and the blue sky exploration potential at Stanija and this all points in one direction for Euro Sun’s stock.
Up.
Read our EXCLUSIVE REPORT to find out why Euro Sun Mining (TSX:ESM, OTCQB:CPNFF) is transforming into such a superb takeover target for a major mining company
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