Last month, we attended Edgewater Exploration’s site visit to their Galician Corcoesto Gold Project. The company is awaiting an updated NI43-compliant resource estimate, which we expect to contain approximately 1.7Moz of gold in all categories.

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Introduction

Last month, we attended Edgewater Exploration’s site visit to their Galician Corcoesto Gold Project. The company is awaiting an updated NI43-compliant resource estimate, which we expect to contain approximately 1.7Moz of gold in all categories.

The long-awaited feasibility study

This updated resource estimate is a first step to release a Feasibility study which is expected in Q3 this year. Except for some cost-inflation we don’t expect any big surprises over the 2011-PEA and are forecasting a production profile of 100,000 ounces of gold per year at a cash cost of $825/oz. We expect the capex to come in around $140M, so at a gold price of $1300/oz, the payback period should be approximately 3 years from the start of production on.

Once this feasibility study has been published, Edgewater will continue their advanced discussions with Barclays Bank and Credit Suisse who are the preferred lenders to provide debt financing for the project. We expect a 1/3 equity and 2/3 debt ratio, which means the company will still have to find approximately $50M in equity financing for the capex. We hope Edgewater will be able to raise money through non-dilutive or less dilutive mechanisms such as a pre-paid gold loan and issuing convertible debt (which can be converted into common shares at a higher share price than the current price).

Political support

The political support for the project is still tremendous. We met with the director-general of the mining department, as well as with the two mayors of the villages on whose grounds the mine and tailings dam will get built. All parties are still fully supportive of the project so we don’t expect any problems during the remaining permitting process.

As Edgewater received formal approval of the EIS in December, the company now only needs a construction license, which will be issued by the local municipality of Cabana de Bergantinos. We don’t expect any difficulties as mayor Jose Muino of Cabana used a pro-mining campaign to get re-elected in 2011.

As the unemployment rate in Galicia is approximately 21%, a lot of people are interested in landing a high-paying job in the mining sector. Edgewater will directly employ approximately 250 people, and about 200-300 indirect jobs will be created as well.

What’s next?

We expect the resource estimate within the next few weeks. This long delay is very likely the main reason why Edgewater decided to fire Tetra Tech as its lead engineer firm for the feasibility study of Corcoesto.
Because of the late resource estimate, the entire timeline of production will be pushed back by at least 3 months and we now expect production to start in H1 2015 instead of Q4 2014.

The Enchi Project in Ghana

Last May, Edgewater released a maiden resource estimate on the Enchi project in Ghana, which is a Joint Venture with Kinross Gold (K.TO, NYSE:KGC). Based on a cutoff grade of 0.7g/t the total resource base is approximately 750koz of gold. However, if we lower the cutoff-gradeto 0.3g/t the resource base increases to almost 1.5Moz.

As Edgewater is currently focusing on the Spanish Corcoesto Project, we don’t expect them to do a lot of work at Enchi this year.

Conclusion

The management team of Edgewater Exploration continues to tick the boxes. The recently announced delay is very unfortunate, but we are still confident George Salamis and his team will see gold production in 2015.

Corcoesto is located in a safe country, there’s a lot of political support and we are expecting a very positive Feasibility Study in Q3 of this year. Once the feasibility study will be received, the company should have its financing package ready within a few months thereafter and we are hopeful to see a construction decision by year’s end.

Disclosure: We attended a site visit and all our costs were reimbursed by the company and hold a
long position in Edgewater Exploration Ltd. Please see our disclaimer for current positions.

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