La Mancha goes organic for 2008

It’s been nearly two years since a reverse takeover put Areva‘s gold assets into then Venture Exchange listed La Mancha Resources‘s (LMA-T) hands — effectively creating a gold spin-off for the French uranium giant.

But despite hopes of duplicating the success that Cameco‘s (CCO-T, CCJ-N) gold spin-off Centerra Gold (CG-T) has had it’s built up a market capitalization of over $3 billion — La Mancha has had difficulty winning over the market.

The company suffered a 70% cut to its share price over the course of 2007, falling from the $1.45 range in January down to the 40 range in December. While it has rebounded lately at press time its shares were trading for 52 — its market cap. of roughly $73 million is still far off from where the company thinks it should be.

“It’s a big understatement to say we are undervalued,” says Martin Amyot, vice-president of corporate development for La Mancha.

Amyot points out that just one of La Mancha’s projects its Frog’s Leg project in Australia recently completed a feasibility that put its net present value at 33 — just 19 less than its current share price. And La Mancha has two producing mines and another key development project on top of Frog’s Leg. It should be noted, however, that the NPV of 33 was arrived at using a 0% discount rate.

Amyot explains the perceived disparity between the company’s present value and its share price as part of logistics of revamping operations. Where they had been run as non-core assets by a large state-controlled entity like Areva, they have been re-tooled by a gold-focused more nimble market driven company like La Mancha.

With many of those adjustments now made he says it’s time to take the message to the Street.

“There isn’t a lot of information on two of the countries where we are,” he says. “We are the only mining operations in both of those countries and the market is not familiar with them. Our role is to be more aggressive in sharing that information.”

“Those countries” happen to be Cte d’Ivoire and Sudan, so some hesitation on the part of market participants can be expected.

La Mancha’s Hassai mine sits in northeastern Sudan. While La Mancha is the operator it has a 40% stake in the mine with the Sudanese government holding a 56% stake and a private French company holds the remaining 4%.

Western corporate participation in Sudan has come under increased scrutiny as atrocities continue to play out in the Darfur region.

But the Sudan Divestment Task Force — a project of the Genocide Intervention Network that focuses on “offending” companies in Sudan that shareholders should divest themselves of — recently issued a report commending La Mancha’s role in the country.

“La Mancha has committed to being a responsible player in Sudan’s mining sector, and has taken steps to address directly the Darfur crisis,” the report reads. The report advises shareholders to not divest from the company but to encourage it to follow through on its commitments.

Attributable ounces from Hassai in 2007 totalled to roughly 35,000 oz. and La Mancha estimates that figure will rise to 40,000 oz in 2008.

While the open pit project currently only has two years of mine life yet, La Mancha will put $3.6 million into exploration there in 2008 and will, for the first time, target the volcanic massive sulphide (VMS) mineralization there at depth.

Moving west and into a country that has had no shortage of its own hardships and horrors, La Mancha has solidified its situation in Cte d’Ivoire with a recently signed agreement with government. Its renewed confidence in the country has led to the start of the first exploration program at the Ity mine in five years.

While Amyot describes La Mancha’s time in Cte d’Ivoire as an “out of ordinary experience,” he says the company has witnessed vast improvements in terms of stability over the last 18 months. And as an added insurance the mine is happily near a French Foreign Legion base, which Amyot says, brings “some peace of mind.”

Along with Ity, La Mancha is also restarting exploration at its Bondoukou project which sits near the Ghanaian border. La Mancha has slotted $1.6 million towards an exploration program there, which will cover 7,000 meters of reverse circulation and diamond drilling.

As for Ity the mine started production in 1991 and has produced 700,000 oz. of gold to date. Last year’s attributable ounces to La Mancha totaled roughly 19,000 oz., and the company estimates that 2008 will bring close to 25,000 oz.

In total, La Mancha estimates that 2008 will bring it 87,000 oz. of attributable gold from Ity, Hassai and Frog’s Leg combined.

And as with Hassai, La Mancha believes there is considerable geological upside still un-tapped at Ity. Results from its 23 drill hole program would seem to bare that hypothesis out.

Highlight grades came from three different holes which returned: 2.65 metres at 29.62 grams per tonne gold from a depth of 1.05 metres, 10.65 metres grading 6.93 grams from a depth of 72.25 metres and 5.05 metres grading 14.84 grams gold from a depth of 20.60 metres.

Those intersects all came from an extension of the Mount Ity pit towards the known Tontuou deposit and the results mean Mount Ity’s reserve envelope could grow thereby extending the mine’s current seven-year mine life.

Roughly $2 million is slated for exploration at Ity this year and La Mancha expects to have a revised resource estimate for the project in the third quarter of next year.

While La Mancha’s interest in Ity was brought down by 10% in May of last year — it now holds a 46% stake in the mine with the government holding the rest, Amyot says the company fought hard during negotiations to maintain its operator status, and was successful in doing so.

And while reviving projects that weren’t a priority for Areva has been a task for La Mancha, having the weight of the big miner in its corner at the negotiating table comes with advantages in such situations.

Five of La Mancha’s eight directors have Areva ties, but lest anyone fear that the French heavyweight is too meddlesome in La Mancha’s affairs, Amyot sets the record straight.

“As far as experience, expertise, data bases, there is tonnes of information accumulated by Areva in its more than 30 year presence in Africa,” he says. “So that brings important insights as much on political front as on the cultural side and this is definitely beneficial for the company. But in terms of the day-to-day operations, we are now based in Montreal with our own management team with its own objectives.”