EnviroGold $2.1m placement to develop annual 100,000 gold ounce Azuay project

EnviroGold (ASX: EVG) is undertaking a small placement to fund the ongoing pre-development of the Azuay gold project, located in Ecuador.

EnviroGold will place 15 million shares at $0.14 to a small number of existing shareholders to raise $2.1 million.

The company has also received a commitment from Moonstar Investments Pty Ltd, a trustee company associated with EnviroGold's chairman Brian Johnson, that it will progressively convert 10 million listed options at $0.15 before the 31 December 2011 expiry date.

Azuay offers a substantial potential return for EnviroGold after the company elected to retain 100% of the project.

The planned expansion at the project in 2012-2013 covers four small scale underground mines within the San Gerardo lease to produce a total of 300,000 tonnes of ore annually.

On the basis of a Scoping Study, forecast production from 2014 to 2026 is 1,134,000 gold ounces, or around 96,000 ounces annually for 12 years.

Scoping Study outcomes from 100% EnviroGold 

- Total Development Costs: US$87 million
- EnviroGold Equity: US$27 million
- Mining Target: 4.0 million tonnes
- Project Life: 12 years
- Annual Mining Rate (after 12 months ramp up): 300,000 tonnes
- Head grade: 11g/t gold
- Average Annual After Tax Profit (Project Life): US$41.6 million
- Average Annual Cash Flow (Project Life): US$44.6 million
- NPV Project (10% discount rate, USD AUD parity): US$180.3 million

Comment

EnviroGold's two major projects have an Net Present Value (NPV) in excess of $US350 million, yet a market cap. of just $A85 million. Even after factoring in risk and probabilities and the "blue sky" of the San Gerardo property, it makes current valuation look low.

With the appointment of Toronto-based Haywood Securities Inc. as sponsor of the company’s proposed dual listing on the Toronto Stock Exchange, this is likely to tap a wider base of investors in North America that will appreciate better the company's Latin American projects.

It will also likely act as a spur for Haywoods to take a line through similar, but higher valued North American emerging gold producers - acting as a catalyst for re-rating of the company.

Originally published at: http://www.proactiveinvestors.com.au/companies/news/17621/envirogold-21m-placement-to-develop-annual-100000-gold-ounce-azuay-project-17621.html