Emerita Resources Corp. (EMO:TSX.V; EMOTF:OTCMKTS;LLJA:FSE) just released a maiden resource on IBW in Spain, which "puts it in the league of high-quality projects advancing toward production," reported Clarus Securities analyst Varun Arora in a May 24 research note. Based on the resource, Clarus revised its estimates on IBW, and this led to a lower target price on Emerita of CA$3.75 per share, down from CA$4.
"We believe the maiden resource confirms our view that IBW will be a mine with our estimated CA$730 million (CA$730M) net present value," Arora wrote. The resource "is comparable in size and grade to current advanced stage polymetallic projects that are trading at seven-plus times Emerita's CA$110M market cap."
349% Projected Return
Given Emerita's current price is about CA$0.53 per share, Clarus expects a significant potential return for investors of 349%, Arora noted.
The Canada-based exploration company is rated Speculative Buy.
About the Resource
The global resource at polymetallic IBW, or Measured and Indicated (M&I) plus Inferred resources, is 18,800,000 tons (18.8 Mt) of about 8% zinc equivalent, reported Arora. This is based only on the Romanera and Infanta deposits. Compared to its historical counterpart, the new resource encompasses 56% more tons.
"With about 75% of the resource in the Measured and Indicated (M&I) category, we believe this is a robust resource," Arora commented.
As such, Emerita could bypass doing a preliminary economic assessment and move directly to a prefeasibility study (PFS), the analyst continued, once metallurgical studies are finished and provided infill drilling is sufficient. The PFS could be done in Q1/24, given metallurgical work is on track for completion in Q4/23.
Overall Grade a Miss
Arora pointed out that the grade of the global resource is lower than expected, at 8.1% versus 10%. This is due to materially lower gold recoveries of 20% assumed for calculating the zinc equivalent grade and due to Clarus' "aggressive" estimated grade for the Infanta deposit."
Where There is Upside
Additional upside exists in several aspects of the project, and Arora presented them. One is in gold recovery optimization, which, he noted, ongoing metallurgical studies would confirm.
The gold recovery assumption "is conservative," added the analyst, and "represents an important resource growth opportunity at Romanera with potential for improving the overall resource grade towards 9%-plus (incremental margin of US$30 per ton; based on 50–60% gold recovery)."
There also is potential to add to the IBW resource the tons, as much as 30 or more percent, excluded from the maiden version because of the conservative recovery assumption.
What's more, Arora noted, Romanera and Infanta remain open for further expansion, and El Cura, where drilling recently began, offers additional resource optionality. (Infill and expansion drilling continues at IBW with six rigs active.)
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Important Disclosures:
- Emerita Resources Corp. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
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Disclosures for Clarus Securities, Emerita Resources Corp., May 24, 2023
The analyst has visited the Company's operations in Spain in November 2021. Partial payment or reimbursement was received from the issuer for the associate travel costs. 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.
General Disclosure: The information and opinions in this report were prepared by Clarus Securities Inc. (“Clarus Securities”). Clarus Securities is a whollyowned subsidiary of Clarus Securities Holdings Ltd. and is an affiliate of such. The reader should assume that Clarus Securities or its affiliate may have a conflict of interest and should not rely solely on this report in evaluating whether or not to buy or sell securities of issuers discussed herein. The opinions, estimates and projections contained in this report are those of Clarus Securities as of the date of this report and are subject to change without notice. Clarus Securities endeavours to ensure that the contents have been compiled or derived from sources that we believe are reliable and contain information and opinions that are accurate and complete. However, Clarus Securities makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to Clarus Securities or its affiliate that is not reflected in this report. This report is not to be construed as an offer or solicitation to buy or sell any security. No part of this report may be reproduced or re-distributed without the written consent of Clarus Securities.
Conflicts of Interest: The research analyst and/or associates who prepared this report are compensated based upon (among other factors) the overall profitability of Clarus Securities and its affiliate, which includes the overall profitability of investment banking and related services. In the normal course of its business, Clarus Securities or its affiliate may provide financial advisory and/or investment banking services for the issuers mentioned in this report in return for remuneration and might seek to become engaged for such services from any of such issuers in this report within the next three months. Clarus Securities or its affiliate may buy from or sell to customers the securities of issuers mentioned in this report on a principal basis. Clarus Securities, its affiliate, and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities discussed herein, or in related securities or in options, futures or other derivative instruments based thereon.
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