Batero tumbles 49% on resource estimate

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

The stock, which as of its previous $2.56 close was up almost 40% for the year, plummeted 49%, or $1.26, per share to $1.27 on Feb. 27. Nearly half of the company’s $120-million market capitalization was wiped out as 6.4 million shares changed hands. Batero ended the day with a $64-million market cap.

Batero-Quinchia’s resource now stands at 248.5 million indicated tonnes grading 0.44 gram gold, 1.54 grams silver and 0.08% copper per tonne for 3.5 million oz. gold, 12.3 million oz. silver and 438 million lbs. copper.  

The project has another 242.2 million inferred tonnes grading 0.33 gram gold, 1.8 grams silver and 0.06% copper 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 cut-off, 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 ounces, 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 oz. mineralized rock in and around this deposit,” he says.

Based on mineralization already intersected, Lindsay adds there is 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] cut-off was low, and the grade basically reflected the low cut-off. 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 a 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 gram and 0.8 gram per tonne. However, at a higher 0.5-gram-gold cut-off, 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 getting hammered for the low grade, and may have chosen to focus on delivering tonnes using a lower cut-off. 

“You play this game between volume and grade, in terms of cut-off based on the drilling that you have. They wanted to err on the side of delivering between the 3 million to 5 million oz. 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 year-end preliminary economic assessment.