Emba Derho scoping study gives Sunridge Gold a rise

As Sunridge Gold (SGC-V, SGCNF-O) announces a positive scoping study for its Emba Derho copper-zinc project near Asmara, the capital of Eritrea, the company’s executive vice-president Don Halliday says Sunridge is no longer seriously considering advancing the project on its own.

The scoping study outlines a 4-million-tonne-per-year mine that would annually produce 55,000 tonnes zinc, 25,000 tonnes copper, 20,000 oz. gold and 600,000 oz. silver. In a base case scenario with metal prices set at US$2.50-per-lb. copper, US$1-per-lb. zinc, US$650-per -oz. gold and $11-per-oz. silver, Emba Derho returned an internal rate of return of 21.6% and a net present value, discounted at 10%, of US$204 million.

The project, which has a primary indicated resource of 58 million tonnes grading 0.76% copper, 1.48% zinc, 10.34 grams silver per tonne and 0.26 gram gold per tonne, would use conventional flotation methods and produce separate copper and zinc concentrates.

The price-tag? US$332 million.

Halliday says a year ago a junior like Sunridge, which was trading in the $3-a-share range, would have considered financing a $300 million project on its own by raising equity and debt. But now, trading well below a dollar since the market crashed last fall, Sunridge’s options have narrowed.

These days “when talking about a US$300 million project you pretty much have to use the JV model,” Halliday says.

For Emba Derho Halliday says Sunridge would like to find a partner to fund it through to a bankable feasibility study. But since an industrial scale mine has never before been built in Eritrea, investors have been tentative with their wallets.

That, Halliday believes, will soon change. The key to garnering interest in Emba Derho and Sunridge’s other projects, Halliday says, is the success of the country’s most advanced mining project: Nevsun Resources‘ (NSU-T, NSU-X) Bisha copper-gold project slated to begin production in 2010.

“The biggest catalyst for change in Eritrea is when (Nevsun) announces their debt financing,” he says. In May Nevsun said it expected US$240 million in financing to come through during the second quarter of 2009.

When Nevsun finalizes the debt package it needs to complete Bisha Halliday believes there will be a “Congo effect” on the Horn of Africa. Once companies see the success of one of their peers they will begin to rush into Eritrea, as they did in the Congo about eight years ago, he says.

An important co-factor in Eritrea’s “Congo effect” will be increasing confidence in the Eritrean government’s commitment to the mining sector. Noting the government has invested over $30 million in Nevsun’s project as a 40% stake holder Halliday says Eritrean president Isaiah Aferwerki’s support of the mining sector is something “you just don’t see elsewhere in Africa.”

Sunridge’s share price gained 4% to 40.5¢ on news of the scoping study.