Edgewater Exploration Corp. (EDW.V) is gearing up for what should be a very exciting fall and winter. The company could make a lot of progress towards production at their 100% owned Corcoesto gold deposit in Galicia, Spain.

The company announced yesterday they sold a 1% royalty + the option to buy back 1% of the current 1.5% NSR for a total consideration of $4M. On top of that, the purchaser of the royalty will also participate in a private placement, coughing up $1M at a premium of 10% over the last price on the market. This is an excellent move, avoiding immediate dilution.

Not only does the company expect to release an updated resource estimate (which we estimate will contain 1Moz+ in Measured and Indicated and 0.5Moz in Inferred resources), Edgewater is also expecting to receive the mine development permits from the local Galician government before the end of this year. Once they get the final permits for the project, we expect to see renewed interest in Corcoesto and in the stock of Edgewater, as this will take away most doubts concerning the permitting process of the project.

Earlier this summer, Alberto Núñez Feijóo, the president of the autonomous region of Galicia, has again explicitly pledged his support to the mine, as can be seen in the following video:

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Besides these two major milestones, Edgewater also expects to release its Feasibility Study early next year. Post the PEA, the company has continued a successful exploration program and we therefore expect a longer ‘life of mine’ and higher NPV than the PEA had previously outlined.

At a $1500/oz gold price, Corcoesto had an NPV5% of $340M, and we expect this to increase to in excess of $400M after the resource update.

It’s not very often that you find a company trading at just 6% of their NPV, which is the case here with Edgewater. There will obviously be more dilution to come, but even under a worst-case scenario with 200M outstanding shares, Corcoesto alone should have a fair value of C$1.50/share.

Beyond Corcoesto, Edgewater also has an interesting project in Ghana (in a Joint Venture with Kinross Gold Corp. (NYSE:KGC, TSE:K), where they outlined an inferred resource estimate of 475,000 attributable gold ounces at an average grade of 0.89g/t. A new 10,000-meter drill program is currently being conducted, and we expect to see new drill results later this fall.

We believe that the risk/ reward ratio of Edgewater Exploration at the current price is very favorable. We expect the company to raise additional capital this fall or winter, but have already taken further dilution into account. Regardless, even if the share count triples, Edgewater remains very undervalued at 36 cents per share.

Disclosure: The author holds a long position in Edgewater Exploration Ltd. Please see our disclaimer for current positions.

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