EAS.v - $100m value hidden behind $19m market cap
Many still don't believe this is the real deal and is going to surprise the market. $1/share without Miwah property factored in. Imo $3/share once the inferred 3.14m oz gold and 9m oz silver is written onto the books.
I did some homework this weekend looking for a few other emerging developer stories with low market caps. All of the ones I found were valued much higher in the market, and some of them were stranded on high capex to get a mine built. Many of the projects I looked at had smaller defined resources and none of them came close to EAS in terms of exploration potential. I found one company that I think compares well and I will be buying it this week.
In short, despite the rise by some 400% in recent weeks, EAS is still cheap and unknown at this point. I do not think people are taking it seriously. There are risks involved and certain accomplishments MUST be successfully achieved to advance through to smaller scale production, but I consider these hurdles to be within the capacity of the management to resolve. The pathway to build a stable company must progress as follows:
1) Granting of AMDAL for Sangihe
2) Secure project funding
3) Begin mine development with surface stripping, construction of processing plant and leach pads
4) Achieve efficient gold recovery with attractive cash flow
5) Provide guidance for growth targets and additional leach pads to increase output
6) Commence exploration on surrounding property area to prove up additional compliant resources
I would expect all of the above can be achieved within one year. With the Covid playing out, and delays to secure senior personnel and perhaps equipment, it could stretch out another 3 months to get production started, and the recovery plant tuned. Sometime in Q2 next year I expect EAS is producing 500oz gold per month with the pathway to 1000 oz per month in H2.
Now assuming any delays or issues arise along the way the timeline will be extended, but I consider all of the above to be achievable. And one other point is worth noting. Unlike any other time over the last 5 years, right now there is enormous money flow coming into this sector. It has never been easier for a story like EAS to have access to funding. Even if they decide to do a significant equity offering, its much easier to do so in the high teens than if the stock was bumping along at a few pennies. It is also much less dilution for shareholder value. But I suspect they will get some form of gold loan or streaming deal to raise a chunk of cash. In the short term it is sub-optimal to do so and adds extra risk to perform. But even if they pledge a small chunk of gold output now to get into production, as the operation is established and gains steam, the longer term production growth will be funded by organic cash flow and the discount gold stream will become less significant.
I have been along for the ride on many of these emerging producer stories and most of the time they do not work out. Smaller mines are enormously difficult to operate with sustained profitability. I have toured a similar mine in Indonesia where on paper it looked enormously profitable yet the sustained cash flow objective was elusive. So too with other projects I visited in Nevada, Mexico, Honduras and Ontario. The problem was usually a matter of companies that were unable to sustain mine output and grade control to keep the plant running month after month. Sometimes metallurgical issues were a problem. And the declining price of gold itself during much of the last 10 years was problematic.
In this case with EAS, I do not think the above issues will be a problem. I think they can extract and process gold with a crude but effective circuit to achieve extremely low cost production. For example, there will not need to be any blasting involved and the oxide horizon can be stripped with a bulldozer, and then an excavator is suitable for extraction. Grade control may be a problem depending on how clearly defined the ore horizons are so they are going to need reliable shift supervisors on duty to direct what is waste and what gets shipped to the processing plant. But its achievable.
Securing consumables and reagents, spare parts, a reserve of diesel - and making sure that none of it walks away, nor the gold that is produced, will be a challenge in this part of the world. Staying in front of operations, to ensure roads are maintained, resource zones are stripped and ready to continue seamless production, leach pads are correctly stacked and cyanide irrigation systems are working properly is the difference between a profitable small mine and a project that never gets close to its potential. Not to mention that the variations in weather will be challenging in the tropics just to keep a leach pad at optimum performance. And then they get to shake it all up and make things even more complex as they advance to increase production...
I am saying its enormously complex and I have been a part of many such efforts that didnt get there. I am not taking this scenario lightly. But I am stating my opinion that they can pull it off. I would not at all be surprised if they are able to sustain a robustly profitable mine even with gold recovery efficiency in the range of just 60% of the head grade. The production window is projected to be such low cost that they will have plenty of leeway to make it work. And if gold holds above $1500 (I believe it will) they are going to make a tremendous amount of money even with just 1000 ounces of gold per month, and even if a large chunk of that is pledged to service a gold loan arrangement.
Most of the advanced junior explorers in the sector have a market cap well above $50 million. Some are above $200 million and no clear pathway to production. I would suggest it is within reason that EAS may rise to a comparable market value if they can deliver a clearly stated growth plan, lock up project funding, and get to work building this mine. Unlike almost every other peer company, the actual exploration process and the potential to report a deposit well above 1 million ounces is probably the easier part of the equation once they can achieve stable operations and reliable cash flow generation.
A lot of IFs and WHENs in this analysis but the bottom line is there is a very good chance Filbert can pull this one off. And as soon as the market wakes up to that potential I look to see this stock trade to $1 relatively quickly. If I compare the same objective with other stories like SVE, ABRA, MMG, SSV, or DEF - just to name a handful of companies worth 3X times the value of EAS and more - I do not see the same potential. And all of them would involve the same kind of start-up issues and risks that I discuss for Sangihe.
cheers!
mike