After encouraging NI 43-101 results, Soho has moderated aggressive drill
programme and is likely to raise new funds
Soho has been aggressively drilling on several mineralised zones on
Tahuehueto since the company commenced work on its initial resource
calculation. At its peak, Soho had four drills turning on the project and
it expects to have one, possibly two, drills running for the remainder of
2008. The company has over 60 new holes for inclusion in a new resource
calculation and it anticipates expanding this total significantly through the
summer and autumn. The aggressive drill programme has cut cash balances
to around C$1m on our estimates and a further fund raise is likely to complete
the 2008 programme.
Soho’s initial resource calculation yields equivalent of one million ounces of gold
Soho Resources received its initial NI 43-101-compliant resource calculation
in late April. Using a 2.0-gram-per-tonne cut-off, Tahuehueto contains an
inferred resource of 6.4 million tonnes containing a gold-equivalent resource
of approximately 1.0 million ounces. This includes 276,000 ounces of gold
and 6.43 million ounces of silver, plus base metals credits for zinc, lead and
copper. Soho expects to revise its estimate late this year. Based on drill results
to date, the company could upgrade a substantial portion of the inferred
resource to indicated and measured status and add further mineralisation
to the inferred category. A lower assumed grade lowers our valuation, but
our increased confidence in the resource provided by increased tonnages
mitigates the impact.
Gold remains near a record high
The price of gold remains buoyant. The metal briefly topped US$1,000 per
ounce early this year and remains just under the US$900 mark, well above its
long-term, inflation-adjusted average of US$550 per ounce. Silver and copper
prices remain robust as well, but lead and zinc prices have been in a slump for
several months. Declining metal prices have had a modest negative influence
on our valuation since our May update, but they continue to support the
economic potential of Tahuehueto.
Further cost inflation and a weak US dollar exert little further impact on valuation
The mining industry continues to experience significant inflationary pressures
because of shortages of goods, components and services. Our previous model
handled much of these expected increases, and our revised valuation reflects
a minor capex increase, mitigated by a lower operating cost estimate since our
last update. The weak US dollar is not a major factor, as most of the company’s
costs are denominated in, or are closely tied to the US currency.
Confirmed valuation more robust on gathering confidence
Our revised core model places a value of C$0.27 per share on Soho
Resources, unchanged from our previous estimate May 2008. Since then
some metal prices have eased modestly and we have limited our mine plan
to an underground only operation. However, it represents a material premium
to the recent share price and is more robust given the gathering confidence
surrounding the project. Our more optimistic assessment of C$0.41 per share,
based on higher probabilities, reflects the potential offered by further drilling
and upgrades to the mineral resource.
