Batero drops 50% on resource estimate

Shares of Batero Gold (BAT-V) took a deadly plunge after disappointing the market with its initial resource estimate at the Batero-Quinchia project in Risaralda, Colombia.

The stock, which as of its previous $2.56 close was up almost 40% for the year, plummeted 49.2% or $1.26 per share to $1.27 on Feb. 27. Nearly half of the company’s $120-million market cap was wiped out as 6.4 million shares changed hands. Batero ended the day with a $64-million market cap.

The resource estimate at Batero-Quinchia pegged indicated resources at 248.5 million tonnes grading 0.44 gram gold, 1.54 grams silver and 0.08% copper per tonne for a total of 3.5 million oz. gold, 12.3 million oz. silver and 438 million lbs. copper.

The project has another 242.2 million tonnes grading 0.33 gram gold, 1.8 grams silver and 0.06% copper in inferred for 2.6 million oz. gold, 14 million oz. silver, and 320 million lbs. copper. The resource estimate is constrained in a Whittle pit shell that used a 0.16 gram gold cutoff, a US$1,500 per oz. gold price and an 80% gold recovery rate.

Commenting on the share price drop in a conference call, Darryl Lindsay, the company’s senior vice-president and chief operating officer, suggests investors may have either expected more gold oz., or didn’t fully understand the exploration potential that is immediately adjacent to the Whittle pit.

“You know I believe that when we’re looking at the total ounces from both the indicated and inferred in the mineral resource, and then we look at the exploration potential that we’ve also identified with our consultants, that the overall ounces are pretty significant in that we’re looking at probably in the order of 10 million ounces of mineralized rock in and around this deposit.”

He adds based on mineralization already intersected, there’s about 1.5 million to 3.5 million oz. gold near the current resource that wasn’t included in the estimate.

Analyst Joe Mazumdar of Haywood Securities, who doesn’t formally cover the stock but monitors the company’s progress, notes the estimate was in the lower end of the anticipated 3 million to 5 million oz. gold, but believes what concerned investors is the grade.

“The [0.16] cutoff was low, and the grade basically reflected the low cutoff. So you are dealing with 0.44 gram per tonne gold with not much copper — 0.08%.

“When you have these gold-rich porphyry systems, like in the Maricunga [belt in northern Chile], you can get 0.4 gram gold per tonne, but you get 0.4% copper, so that makes it much better. Whereas this one you are dealing with the same grade, but with quarter of the copper, so you are not getting much co-product assistance from copper on this end, and as well the silver grades are low.”

Mazumdar says shareholders may have expected the gold grade to fall between 0.6 and 0.8 gram per tonne. However, at a higher cutoff of 0.5 gram gold, indicated resources shrink to 1.9 million oz. based on 81 million tonnes averaging 0.72 gram gold, while inferred resources fall to 700,000 oz. gold from 32 million tonnes at 0.66 gram gold.

Mazumdar reckons the company didn’t anticipate on getting hammered for the low grade and may have chosen to focus on delivering tonnes using a lower cutoff.

“You play this game between volume and grade, in terms of cutoff based on the drilling that you have. They wanted to err on the side of delivering between the 3 million to 5 million ounces for the market, but the market didn’t like the grade that came along with that volume.”

The company aims to provide a better picture of the potential resource in a preliminary economic assessment scheduled to be out by year end.