In a November 16 research note, Clarus Securities Inc. Research Analyst Varun Arora, MBA commented that critical and base metals explorer and developer Emerita Resources Corp. (EMO:TSX.V; EMOTF:OTCMKTS; LLJ:FSE) is now engaged in contracting for three additional diamond drilling (DD) rigs for deployment at the company's Iberia Belt West Property (IBW) within the next two weeks. Emerita Resources is currently operating two drill rigs at IBW so mobilizing these additional rigs will facilitate significant acceleration of the planned drill program.
The analyst advised that the three new DD rigs will initially be deployed at Infanta and that the company intends to move two rigs to its Romanera property in the coming weeks upon receipt of newly granted permits for IBW.
The Clarus Securities report listed that Romanera hosts an historic resource of about 34 Mt at around 7% Zn eq. The analyst added that historic drilling at Romanera previously intersected 20 m of 13.4% Zn eq and 24 m at 10.5% Zn eq from surface depths ranging from 300-350m. Clarus stated that in the coming months it expects similar wide, high-grade intercepts from Emerita's drilling efforts at Romanera.
The analyst mentioned that on November 12, 2021, Emerita's management provided additional depth extension step out drill results from three holes at Infanta which showed strong potential for high grades at deeper depths.
According to Clarus, the results were significant and included two holes from the North Block (#17, #23) and one from the South Block (#21). Recorded intercepts included 11.3 m at 10.2% Zn eq in Hole #17, 5.1 m at 20.7% Zn eq in Hole #23 and 5.5 m at 12.4% Zn eq in Hole #21.
Clarus reiterated from its prior research note that mineralization at the property is vertically faulted. As a result, mineralization at the South Block typically begins at surface downward to about 150 m. The North Block mineralization does not begin to around 50-100 m from surface and based upon a geological survey (TEM) is believed to extend downward as much as 400 m or deeper.
The analyst indicated that the historic resource estimates were based solely on the South Block site and were only tested to a depth of about 120 m. In addition, the North Block mineralization had not been explored by the property's previous operators due to limits of prior exploration licenses.
The report stated that the deeper intercepts from the South Block generally returned lower grades as drilling approaches the fault between the North and South blocks.
Clarus noted that drilling at the North Block is now focused on the extent of the depth and eastward lateral continuity of mineralization. Now that the hunting season has ended in the area, the firm plans to commission a geophysical survey (TEM) and to resume testing the depth and lateral extent of the western strike as well.
Clarus securities commented that it is encouraged by the initial results from deeper drilling at Infanta and that it believes that the North Block mineralization will be proven to expand along strike and to depths beyond 400 m surpassing the roughly 100 m tested to date.
Clarus commented that it believes that "the big prize for EMO will be the awarding of the world-class, past-producing Aznalcollar mine that is the subject of an ongoing criminal legal dispute." The research firm said it expects the Administrative Court in Spain will announce a decision regarding the Aznalcollar public tender that will be favorable to Emerita Resources and added that as Aznalcollar is a former producing mine, it can rapidly be advanced to underground production within five years and offers high estimated grades of around 12.6% Zn eq.
Clarus advised further that "it expects the two assets to produce at a combined rate of 550-600 Mlb Zn eq per year at the lowest quartile costs which would generate in excess of US$300 million annually in free cash flow."
The analyst identified several near-term catalysts that could potentially positively effect Emerita. These include the resolution of the Aznalcollar case which Clarus believes will be resolved by year-end 2021. In addition, Clarus noted several other important upcoming events including additional drill results from its ongoing drill program at La Infanta, the anticipated receipt of environmental approval (AAU) for drilling at Romanera & El Cura in Q4/21, the start of the 10,000 m drill program at Romanera in Q4/21 and the company's resource update for the Iberia Belt West property expected to be completed during H1/22.
Clarus securities reported that on November 16, 2021, it revised its price deck in U.S. dollars for long-term metals prices (US$). The firm said that its modeling programs will utilize a $1.30/lb price for zinc, a $23/oz price for silver and a $1,725/oz price for gold.
Clarus Securities Inc. stated that is maintaining its "Speculative Buy" rating on Emerita Resources Corp. but is raising its price target to CA$5.00 from CA$4.50. The research firm advised that the CA$0.50/share increase is attributed to revisions made to its price deck due to higher future commodity price estimates. Using its existing valuation model, the higher forecasted metals prices have effectively increased the firms NPV5% calculations by about 20% to around CA$1.48 billion, up from CA$1.23 billion.
Clarus added that if Emerita were to receive a favorable ruling in an ongoing court case and ends up being awarded the Aznalcollar project, then it would increase its target price to CA$6.90/share.
The company's shares trade on the TSX Venture Exchange under the symbol "EMO" and last closed for trading at CA$2.99/share on Thursday, November 18, 2021.
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Important Disclosures from Clarus Securities Equity Research, Emerita, Nov. 16, 2021
Within the last 24 months, Clarus Securities Inc. has managed or co-managed a public offering of securities of this company.
Within the last 24 months, Clarus Securities Inc. has received compensation for investment banking services with respect to the securities of this company.
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