Investment Commentary — Gaby project attracts interest

An expanding gold resource at the Gaby project in Ecuador has prompted investment firm Yorkton Securities to issue a buy recommendation on Ecuadorian Minerals (TSE).

Ecuadorian holds an option to acquire the Gaby concession from a local group, and the company is also earning a 51% interest in the adjacent Guadalupe concession from Zappa Resources (VSE).

Ecuadorian recently completed a new resource estimate for the Gaby deposit, which is now believed to contain about 120 million tons grading 0.03 oz. gold per ton. Approximately 60% of the resource lies on ground wholly owned by Ecuadorian, while the remaining 40% constitutes part of the joint venture with Zappa. Yorkton calculates that Ecuadorian’s share of the gold resource is 2.9 million contained ounces.

Ecuadorian recently has been trading at $1.35, and the company has 21 million shares outstanding. Taking this into account, Yorkton concludes that the company’s adjusted market capitalization of US$11 per oz. must mean that the recent increase in the size of the deposit has not yet been fully appreciated by the market.

Gold mineralization in the Gaby deposit is associated with sulphides within a fractured, hornblende, porphyry intrusive and will require milling.

Despite Gaby’s status as a low-grade, sulphide deposit, Yorkton points out that the project’s economic viability is greatly enhanced by several factors, including: the deposit’s large tonnage and expansion potential; the relatively low stripping ratio of 1.3-to-1; the simplicity of the metallurgy, which provides 80-85% recoveries using conventional carbon-in-leach milling; and, finally, the project’s easy accessibility

(it lies within 2.5 miles of the Pan-American Highway and 90 miles southeast of Guayaquil, Ecuador’s largest city and port).

Ecuadorian is working to complete a prefeasibility study by mid-1996 and plans to resume drilling in an effort to upgrade the resource, as well as test other targets for additional gold reserves.

Yorkton believes the Gaby project can support a 27,000-33,000-ton-per-day milling operation, producing in the order of 250,000 oz. gold per year at a cash cost of US$220-240 per oz.

Yorkton bases its projections on similarities shared between Gaby and Amax Gold’s Fort Knox development in Alaska. The similarities include cash mining, milling and general costs which total US$5.67 per ton, and a capital cost of US$175 million.

In addition to its Gaby asset, Ecuadorian holds an option to acquire a 65% interest in the Chaucha copper project in southwestern Ecuador from Ag Armeno Mines & Minerals (VSE) and Ecuadorian Copperfields (VSE).

Chaucha hosts an oxide copper resource of more than 150 million tons grading 0.39%-0.41% copper.

Ecuadorian owns other exploration properties in Ecuador and recently optioned the Beroen gold project to RTZ Mining & Exploration. The Rio Blanco area on the property has returned gold values of up to 0.02 oz. gold within a rhyolite intrusive immediately north of RTZ’s Canoas exploration concession.