Gold Road Resources: Free To Focus On Central Bore Project

Gold Road (GOR) has secured a binding exploration JV agreement with Sumitomo Metal Mining. This covers an unexplored area of 2,720km2 south of the Central Bore project within the existing Yamarna tenement holding. The deal potentially adds up to A$8m in exploration funding and provides Sumitomo with up to 50% interest in the project. Clearance surveys of the area are set to commence in May 2013, with drilling targeted by October 2013 subject to soil testing and sub-audio magnetic (SAM) surveys.

Agreement covers 2,720km2 of Yamarna tenements
The deal significantly expands exploration activity well beyond the current 6km2 of the Central Bore area at no cost to the company. Under the terms of the binding agreement Sumitomo will spend a minimum of A$1.75m by December 2013 and a further A$1.75m by December 2014 to fund exploration of the southern Yamarna tenements. The agreement includes the option to fund up to A$5m or A$8m by December 2016 to earn up to a 30% or 50% interest in the South Yamarna project respectively.

Free to focus on Central Bore project
With funding now in place, Gold Road plans to commence soil testing ahead of the SAM surveys and potentially start drilling by October/November 2013. The deal significantly expands the exploration perimeter within Yamarna and frees Gold Road to focus on bringing Central Bore, where it retains a 100% interest, into production by end-2013. Completion of the Central Bore project’s pre-feasibility study (PFS) is expected by end-June 2013.

Valuation: Shares at 79% discount
Our 33c/share sum-of-the-parts valuation remains unchanged at this point and comprises 8.4c/share from an NPV calculation, whereby small-scale production commences at Central Bore by end-CY14. We have added 24.6c/share for the remaining resources, derived by benchmarking forecast residual levels against the global average EV/in situ values for measured, indicated and inferred ounces for the Australian market (see our sector report Gold: New benchmarks for old), which is then discounted back into current money terms. At 7c/share the market is applying a 79% discount to Gold Road’s EV compared to global average benchmarks, which, when applied, generates a valuation of 5.2c/share for the remaining resource and a sum-of-the-parts-valuation of 13.6c/share.

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