SBS - Sub-Sahara Resources

[doogie_goes_off]

Obviously no one cares about a potentially massive gold resource in the back blocks of africa, maybe I should post about a tin-pot uranium explorer with no hope of production in Australia and everyone would be excited!

 

[doogie_goes_off]

There has been a big jump in the number of shares traded in the last hour or so, over 40 million traded for the day now. Anyone have access to course of sales to see if there was a big buyer?

 

[melbmade]

We can't know for sure the individuals or brokers until a few days...even with access to course of sales.

 

[doogie_goes_off]

Sorry, I should re-word that. Were there any particularly large trades? because there was a significant bundle swallowed in a shor time and a quick secondary rise.

 

[pauldoohan1]

Obviously no one cares about a potentially massive gold resource in the back blocks of africa, maybe I should post about a tin-pot uranium explorer with no hope of production in Australia and everyone would be excited!

LOL, I would get involved Doogie but I'm still smarting from RMS today. Tin pot Uranium explorer you say, might have to look into that one.

 

[doogie_goes_off]

Obviously the furious trading was a bit of a storm in a teacup with a retrace of the SP today. For Paul's benefit it would seem that SBS have not announced a huge nuggety intersection like RMS did but still managed to report high grades over wide intersections in multiple holes, this broad high grade type of result allows for greater confidence in any resource calculation. SBS are also drilling a gridded pattern which indicates that access to the site is probably quite good. I think we can look forward with confidence to a significant improvement in SP with the announcement of the upgraded resource figure due before the end of year.

 

[doogie_goes_off]

Fundamentally I think this is a good stock, I'm going to throw in some speculative but conservative figures here just to highlight the potential. Current resource is 760,000 oz Gold at Zara (Koka resource). Let's just say they could sell for an average price of $600/oz ($US) over the next ten years ~700,000 tonnes a year processed = medium sized plant required. Let's say that cost of production was something horrific (exaggerated) like 2/3 of sales. They would have profit of (760000*600*1/3)= $152M. They own 80% of the project (or will do soon), so proportionally prifit is ~$122M. The approx number of shares on offer by my calcs is 545M, so the profit per share is 22c, spread over 10 years that's an EPS of 2.2c.

For a share price of <10c and a quality >3g/t average gold grade in a deposit of this size with soild drill results like I have posted recently, I don't think this gold explorer can be ignored.

Three things that would be positive from here would be:

New Resource figure (due by end of the year)

Positive bankable faesability with a clear plan for infrastructure (presumably the next step after the new resource - 6 months?)

Interest from a big gold producer or financing for construction (1 year?).

Risks that I can see are:

Amount of interest the government takes in the project (I think up to 10%) which would dilute earnings.

Preventative infrastructure cost or lack of water for processing.

Political turmoil/war.

I'm putting a few of these under the mattress now because they could be a good little earner and will spend the time to research the project a bit further. If anyone else has a handle on other risks or positives for the company I'd like to hear them.

 

[doogie_goes_off]

AGM presentation released at 2:40pm today, indicates the potential of their other projects including a 30% free carried interest to BFS on a 4.5Moz Au deposit in Tanzania, Barrick to finance if they go ahead. Ignore at your peril.

 

[jman2007]

Can't say I know a huge deal about this company, but...

IMO I believe the sp adequately reflects the markets stance towards SBS at the moment, personally I wouldn't go near a company with interests in Eritrea. The Koka x-sections look interesting, but in reality are just plotting drill interecepts, if they want the market to take them seriously they will need to come up with something a little more sophisticated than that. I wonder what kind of security arrangements a mining op would require here?

The Tanzanian projects look ok, but some of the JV arrangements basically appear to be utilising SBS to fork out a disproportionate share of the initial costs and then carry forward a diluting interest over time. The classic "farm-out the high risk stuff to the little guy" story. Again, these deposits will require a huge amount more work to be done on them before they can even think about beginning to mine.

I have no idea what the infrastructure constraints are at any of these projects.

One to watch from the sidelines, but imo PRU or CGX would be better companies if you are looking for developing gold stories and don't mind an element of geo-political risk.

 

[So_Cynical]

SBS One to watch from the sidelines, but imo PRU or CGX would be better companies if you are looking for developing gold stories and don't mind an element of geo-political risk.

Hardly think its fair to lump these 3 in the same boat....as it would appear that we have missed the boat
with PRU & CGX as far as a good entry goes.

 

[jman2007]

Hardly think its fair to lump these 3 in the same boat....as it would appear that we have missed the boat
with PRU & CGX as far as a good entry goes.

Fair enough,

Although it wasn't all that long ago that CGX was ripe for the picking at 70c or so. Bear in mind though that neither PRU or CGX are Au producers as yet, so a future entry point may present itself.

As far as SBS goes, the exact intentions and precise level of interest that the Eritrean Govt would take in any project requires some clarification, as they appear to be entitled to a 10% free carried interest on the application of any mining lease, a 30% equity participation interest in any mining project and 5% royalties on any precious metals mined.

 

[So_Cynical]

Fair enough,

Although it wasn't all that long ago that CGX was ripe for the picking at 70c or so. Bear in mind though that neither PRU or CGX are Au producers as yet, so a future entry point may present itself.

As far as SBS goes, the exact intentions and precise level of interest that the Eritrean Govt would take in any project requires some clarification, as they appear to be entitled to a 10% free carried interest on the application of any mining lease, a 30% equity participation interest in any mining project and 5% royalties on any precious metals mined.

Eritrea seems fairly stable....theres no internal strife even though...Eritrea has two
dominant religions, Christianity and Islam. Muslims, who make up about 49% of the
population predominantly follow Sunni Islam. The Christians (about 49%) wow.

I'm thinking Eritrea is not as geo-politically risky as many would think...lets face it
they need the development and the single party political system seem to be working.

Reserves of foreign exchange and gold: $25 million (2006 est.)
Exports - partners:Italy 26.7%, France 13.8%, Australia 8.2%, Sudan 7.9%, US 7.8%, China 6.2%

http://en.wikipedia.org/wiki/Eritrea

https://www.cia.gov/library/publications/the-world-factbook/geos/er.html#Govt

 

[So_Cynical]

Yippy I'm in, finally got my buy order filled today

How could u not like this company?

Market Cap: 40,092,788
Approximate total inferred & indicated Gold resources, in excess of 1.7 million
ounces....thats like over 1.3 billion $ in gold.
20+ million worth of shares in 2 Canadian mining company's.
no debt and 3 million in cash....JVs with Barrick and Resolute.

How could u go wrong.

 

[So_Cynical]

I topped up yesterday at a super low price...just as well with the good ann out today.

Sub Sahara encouraged by further high drill intercepts from Zara Gold Project in Eritrea.

The company has just received assay results from diamond drilling (ZARD85-ZARD096) completed
last year, which have returned additional significant high grade gold intercepts such as
6m @ 89.62g/t
4m @ 20.55g/t
3m @ 34.98g/t
all within 60 meters depth.:dance:

It is only infill drilling so they knew there was gold there anyway, more drill results to come over the next few months.

So i'm thinking theres no way they can not go ahead with this project, theres just too
much gold there...Sub Sahara Resources will be producers at some stage....IMO

http://www.subsahara.com.au/reports/announce/2008/ASX-Release Zara 08-01-25 _final_.pdf

 

[doogie_goes_off]

Trading halt... do we expect that Barrick will undertake feasibility on their projects and buy in? do we expect more high grade drilling results? or a war in and Eritraean province?

I'm holding so lets hope ann. is good!

 

[So_Cynical]

SBS really need a miner with deep pockets to help with Zara, if the halt is
just more great drill results as i suspect...just makes it easier to get the
third Zara JV partner.

Whatever the halt is...its good news.

Nothing bad happens in north Africa....right

 

[So_Cynical]

More Good news from Sub-Sahara Resources....as expected.

From todays Ann.....Koka Resource Highlights:

• Resource increased to 1.04 million ounces of Gold from 5.13 million
  tonnes at an average grade of 6.31g/t Au at a cutoff of 1.5 g/t.
  
  
• This is an increase of 250,000 ounces of gold to previous resource.
  
  
• Considering selective mining scenarios, the grade of the deposit has
  increased to 6.31g/t while tonnage has decreased.
  
  
• Mineralization still open at depth and along strike, with a number of
  additional high priority targets still to be tested
  
  
• Additional infill diamond drilling results since October 2007 are yet to be
  included in resources estimate

Read all about it.
http://www.subsahara.com.au/reports/announce/2008/ASX-Zara 25-2-08 final-3.pdf

So in summary and as ive said before...theres just too much gold there for
a mine not to happen...whatever minor issues this project has, the dollar
value is just to high to not find a way forward.

Lets keep in mind that the Mineralization is at surface in many places and
open at depth and along strike in 1 direction...so the resource will almost
certainly increase again.

 

[Sean K]

I'm trying to make heads or tails out of SBS and why it seems so cheap on an oz au basis. Must be something to do with the Koka deposit. Has great grades, but perhaps capex/opex may make it untenable? Deposit looks to be at 50 - 200m so depth not really an issue. How's access I wonder. Looks pretty barren out there. Or, is it the country risk?

Must also consider they only hold 69%

AND

On application for a Mining License the Government has the right to:
10% free carried interest, and
the right, by agreement, to a 30% equity participation interest in any mining project, and
a negotiable royalty (up to a 5%) on mined precious metals.

So, some dilution to occur here, if it goes to mining.

Yes, has some good JV's in Tanzania.

Nyanzaga Gold Project
Sub-Sahara hold 49%
Barrick spent US$13m
Barrick to complete BFS to earn 70%.

Tusker
4.5 million oz inferred grading 1.15g/t gold from 123,000,000 tonnes
Kilimani Zone
No resource estimate

Also,

Lake Victoria JV (SBS-manager) – diluting to 30%
Potential for +1moz
SBS free carried to completion of BFS, Currently drilling

Nyakufuru JV & Kahama JV’s – diluting to 30%
Mineralisation discovered over 600m
Drilled to 50m vertical depth

So, 1m oz au in Koka, have 69% interest but could be diluted by up to 45% by the look of it, which will leave them with roughly 300K oz as a guide, with potential for a few more ounces.

Nyanzaga 4.5m oz diluting to 30% = 1.35m oz au.

Lake Victoria (possibly 1m oz) diluting to 30% = 330K oz au.

So, total oz au to SBS is around 2m oz.
Current MC about $22m.

Maybe there's too much dilution and country risk?

But you'd think just on the Barrick JV they're looking OK value?

Chart wise, eeeek!

 

[jman2007]

I'm trying to make heads or tails out of SBS and why it seems so cheap on an oz au basis. Must be something to do with the Koka deposit. Has great grades, but perhaps capex/opex may make it untenable? Deposit looks to be at 50 - 200m so depth not really an issue. How's access I wonder. Looks pretty barren out there. Or, is it the country risk?

Maybe there's too much dilution and country risk?

But you'd think just on the Barrick JV they're looking OK value?

Chart wise, eeeek!

Ooops...

She's headed south bigtime Kennas. Some good points there about the dilution factor which I hadn't really taken into consideration. Personally, there is just too much uncertainty revolving around Eritrea. I know some people would dispute this, but there are a few case histories of foreign-owned companies that have left Eritrea with their tails between their legs.

At the end of the day, whether it was due to errors on the part of the companies, the Dept of Minerals (or whatever they call themselves), or just simple cultural misunderstandings and misconceptions, Eritrea remains a risky place to do business. Trading wise, these levels might provide a bit of a taster for the bold investor who isn't afraid of some volatility

The infrastructure issue would be my other main concern, particularly the availability of water in this type of arid climate. Even for a modest 1Mtpa mill, it would simply be impossible to truck that amount of water in daily due to the ridiculous costs, which leaves the options of a pipeline which would need to be constructed from a major urban center/source of fresh water. Perhaps there is a local source they could tap into which I'm not aware of, in which case this concern becomes irrrelevant. But at the end of the day, even the most stunning high-grade deposit is worthless if you aint got no water....

My
jman

 

[So_Cynical]

Hey Kennas...welcome to the SBS thread

The weakness in the SP this week is Opes Prime related..the weakness overall
u have already summed up.

leaving the Tanzania assets of of the equation....the Koka deposit will end up being around the
1.2 mil OZ mark (minimum)...with POG back to over 1k USD thats 1.2 billion dollars worth of Gold
at (mostly) less than 200 meters down, in open desert land, in a country that has pretty much
no environmental controls and almost no history of mining....oh and the Govt is flat broke.

With all these real world factors...theres just no way that nothing will happen with this deposit, the
10% free carried interest the govt will get, would i imagine, be there biggest single asset.

On application for a Mining License the Government has the right to:
10% free carried interest, and
the right, by agreement, to a 30% equity participation interest in any mining project, and
a negotiable royalty (up to a 5%) on mined precious metals.

I take the "30% equity participation" to mean the the Govt will have to pay
30% of the mine dev costs...30% equity in the mine :dunno:

The royalty is no big deal...lotsa country's demand royalty's, just usually
less than 5%.

Anyway SBS up around 8% today, so my buy order (top up) went unfilled.