Initiating Coverage - Sovereign Gold Company Limited

15 July 2013
20 Sep
2012
SOVEREIGN GOLD LIMITED (SOC)
MT ADRAH DRILLING SHOWS GOLD MINERALISATION
Recommendation:
CAPITAL STRUCTURE:
Net Asset Valuation:
na
ASX Code:
SOC
Share price: $0.20
12 Month High: $0.295
12 Month Low: $0.165
12 Month Volume: 9.8m
Market Cap: 30.2m
Listed Shares: 143.5m
Unlisted Shares:
0m
Listed Options: 7.25m
Unlisted Options:
0m
Cash (May 13):
$1.5m
Debt:
$0.16m
Speculative Buy
TOP SHAREHOLDERS
Hudson Resources 28.3%
Raffles Capital 26.2%
Code Nominees Pty Ltd 8.18%
Top 20 92.3%
DIRECTORS:
Mr John Dawkins AO
Mr Michael Leu
Mr Peter Meers
Mr Jacob Rebek
PRICE CHART:
Source: ASX
Analyst: Rod Buckton
+61 2 8224 9650
rbuckton@focusresearch.com.au
Chairman
Managing Director
Non-exec. Director
Non-exec. Director
This research report is
commissioned research for which
Focus Research has received a fee
from Sovereign Gold Company
Limited. Please see disclaimers for
additional information.
TO 1000M DEPTH
INVESTMENT PERSPECTIVE:
Gold explorer Sovereign Gold Company Limited (ASX:SOC) listed in December 2010 with a
focus on exploration in New South Wales. Critically, it has exploration funding of up to
$21m through a JV while only diluting its interests to 70% on two key projects.
This Company has judicially expanded its asset base through the takeover of Gossan Hill
Gold Limited (SOC now at 93.91%) which is providing current drilling targets and a JORC
Inferred resource of 239,000oz at the Hobbs Deposit at Mt Adrah. At Hobbs, a 313m
vertical hole returned continuous gold at 1.42g/t Au with the hole ending in gold and grade
improving with depth. Deep drilling to 1030m is testing systems at depth where continous
visible gold mineralisation has been observed to 886m and intermittent sulphides to
1030m. Assay results are imminent but this is an outstanding intercept.
Sovereign Gold’s intention to expedite drilling of deep holes to establish the vertical extent
could significantly upgrade the Hobbs resource where the Company see potential for
2Moz+. The Hobbs Deposit and adjacent targets should enable Sovereign Gold to rapidly
deliver resource growth and leverage off its experience exploring for Intrusion Related Gold
Systems (IRGS) elsewhere in New South Wales.
This expertise in IRGS has lead to a reinterpretation of their exploration tenements covering
in the Rocky River-Uralla Goldfields of New South Wales. These fields historically produced
from deep lead and some hard rock operations from 1858, but have not had any
subsequent modern exploration or drilling. The IRGS model was only formulated in 1999,
based on systems in Alaska such as Pogo (5.7Moz). In Australia, IRGS systems include
Kidston in Queensland (4.5Moz) and Timbarra in NSW (0.7Moz).
Importantly, and increasingly rare in the junior gold sector, the Company has exploration
funding of up to $21m through a farm-out to SUGEC, to proceed with drilling on multiple
targets focusing on IRGS systems within ten licences.
We recommend the Company as a SPECULATIVE BUY, offering high potential at Mt Adrah
for rapid expansion of gold resources to progress through to an initial mining operation,
and the potential for further IRGS discoveries based on known magnetic and geochemical
anomalies. The Company has significant expertise in IRGS and the exploration team have a
strong record of success. The Board is experienced and bring a clear strategy to the table to
fast-track exploration and development.
KEY POINTS
» Total gold resource of 239,000oz @ 1.13g/t at the Hobbs Deposit purchased for
$2.93/ounce through Gossan Hill. Initial exploration target 0.5-2.0Moz.
» Fully funded $11m drilling program over two years on multiple prospects to deliver
constant news flow and targeting rapid JORC resource base expansion.
» Drilling underway at Hobbs has reached a final depth of 1030m. Continuous gold
mineralisation observed to 886m. Further drillholes will commence immediately.
» The Rocky River-Uralla Goldfields provides outstanding targets for IRGS systems with
positive exploration to date and a 2500m drilling program underway.
Focus Research Investment Notes | 2