An initial mineral resource
Mine Development Associates has calculated an inferred resource of 6.4
million tonnes, using an unoxidised gold-equivalent cut-off of 2.0 grams per
tonne. The resource averages 1.34 grams of gold and 31 grams of silver per
tonne, with 0.24 percent copper, 0.78 percent lead and 1.43 percent zinc. This
translates to 276,000 ounces of gold, 6.43 million ounces of silver, 33.5 million
pounds of copper, 110.5 million pounds of lead and 201.1 million pounds of
zinc. Although the tonnage is greater than hypothesised, the average grades are
significantly lower, which results in a neutral impact on our valuation.
Continued drilling yields further encouragement
Soho continues its aggressive drill programme and assays from several zones
continue to yield encouraging assays over significant widths. This supports our
hypothesis that additional tonnage will be available at Tahuehueto.
Higher precious metal prices
The price of gold surged to an all-time high early this year, topping US$1,000
per ounce for the first time, before retreating to US$850 per ounce to start
May. The current price, just under US$900 per ounce, is significantly above
the level last fall, at the time of our initiation note. Silver and copper prices are
also higher than noted in our initiation note. These increases are only partially
offset by lower current prices for lead and zinc.
Potentially higher capital costs
The mining industry continues to experience cost pressures in excess of general
rates of inflation, due to high demand for critical components, the rising price
of oil, steel and other key commodities. Although most of these increases were
factored into our earlier valuation, our revised model increases the capital cost
by C$2m to account for inflationary pressures above our estimate. This exerts
a slight negative influence on our valuation.
Our core valuation increases to C$0.27
These factors are the driving force behind a modest net increase in our basecase
valuation to C$0.27 per share, from the earlier C$0.25 per share noted
in our December 2007 initiation note. Soho’s continued drilling offers further
upside potential.
