Sunridge gets cash and government on board in Eritrea

Sunridge Gold (TSXV: SGC; US-OTC: SGCNF) says it’s the biggest milestone achieved to date at its Asmara copper–zinc–gold project in Eritrea. In one broad stroke the company has cemented its position in the country and raised a lot of capital.

It accomplished both goals by coming to terms with the Eritrean National Mining Corp. (ENAMCO), which will pay Sunridge US$18.3 million for a 30% stake in Asmara. That interest is a participating one, so ENAMCO will pay for one-third of all of Asmara’s development and exploration costs going forward, and will also kick in for costs going back to July 2012. The retroactive payment is expected to be in the neighbourhood of US$4 million.

ENAMCO has another 10% stake that will be carried to production by the participating partners.

If investors think the price tag looks like a pretty good deal for ENAMCO by today’s standards, they’d be right. The valuation was done based on the prefeasibility numbers available as of July 2012. Since then Sunridge has completed a feasibility study that has added considerable value to the project.

Stefan Ioannou, an analyst with Haywood Securities, said the sale price was in line with his expectations, and noted that the deal makes Sunridge a more likely takeover target.

“The sale represents a milestone in furthering the Asmara project, which we now believe is ‘ripe for the picking’ in a marketplace hungry for advanced-stage, mid-sized copper–zinc projects,” he wrote in his research note.

Ioannou has Sunridge rated as a “buy” with a 35¢ price target. 

The next step for the two companies is to finish up a shareholders’ agreement. The deal will be modelled on the one built between the government and Nevsun Resources (TSX: NSU; NYSE-MKT: NSU) over its Bisha copper project in the country and is expected to take less than three months to craft. The agreement would cover management and funding by the joint venture, which would be made up of 60% Sunridge and 40% ENAMCO. A five-member board of directors would oversee the joint venture, with Sunridge getting three seats at the table to ENAMCO’s two.

Asmara has a three-phase start-up plan, with production anticipated in 2015. A future mine is expected to produce 65 million lb. copper, 184 million lb. zinc, 42,000 oz. gold and 1 million oz. silver per year over the first eight years.

The feasibility study, which came out last year, considered mining four deposits at the project: Emba Derho, Adi Nefas, Gupo Gold and Debarwa.

On Feb. 5 — the day the news was released — Sunridge shares were up 2¢, or 8%, to 27¢ on 1.91 million shares traded.