If you’re serious about investing in small gold explorers with big ambitions, and they have an orebody ready to go, cash in the bank to fund the project, and a high-class management team with a proven track record then it’s awfully hard to go past Emerald Resources (ASX:EMR).

The positive aspects about Emerald have been pointed out before on Stockhead, most recently in a detailed report last July when the stock was hovering around 4c, where it had been stuck for some time.

READ: Emerald starts to shine, as we said it would

At last sales around 4.7c it might seem there’s still not a lot to get excited about, but that modest price rise masks a lot of behind the scenes activity that has positioned Emerald for its most interesting year yet, and at a time when international investors are likely to start taking greater notice of the stock.


What’s driving Emerald today is the same asset which caught the eye of early-bird supporters two years ago, the Okvau gold project in Cambodia, a country with minimal mining history.

A relatively small but potentially high-profit project, Okvau is expected to produce 106,000 ounces of gold a year during an initial seven-year campaign at an all-in sustaining cost of $US754 ($1123) an ounce, which at the current gold price of $US1571/oz implies a gross margin of more than $US800/oz.

The trick, as with all mine development proposals, is to complete construction and start delivering gold, something that Emerald should be doing by the second quarter of next year and it’s during the lead up to first gold that the stock should be at its cheapest.

Apart from proven gold in the ground waiting to be mined, Emerald has a number of other features which make it a stock to watch, if not own, including:

  • A recently completed capital raising which has already tipped $30.5m into the company’s coffers, with another $44.5m to come after the second leg of the raising is approved at a shareholders meeting scheduled for early next month;
  • A project funding facility for $US60m with Canadian gold-financing specialist Sprott; and
  • The completion of early-stage work at Okvau including the relocation of local families from close to the mine site in the northeast of Cambodia, the building of a bridge across a nearby river, and upgraded access roads.

The mine plan for Okvau is for a single pit targeting a gold reserve of 907,000oz in ore averaging 2 grams per tonne (g/t), with the potential for more to come as exploration spreads out across a 1400sqkm tenement position.

Recent high-grade drilling success, including 5m at 9.26g/t from a depth of just 5m is a pointer to Emerald possibly being able to boost the grade of mill feed, which could significantly improve what is expected to be an already impressive financial performance.

But the issue that really makes Emerald stand-out among a crowd of emerging gold producers is that Okvau is not the primary attraction.

That honour goes to the people behind the company and a suspicion that they have a lot more planned than a single mine in a remote South East Asian location.

Emerald’s chairman, Simon Lee, the company’s managing director, Morgan Hart, and the rest of the management team have proven track records of developing and operating much bigger mining projects than Okvau.

Hart is a former managing director of Regis Resources (ASX:RRL), which has grown into a $2.2 billion gold producer. Mick Evans, an executive director of Emerald, was chief development officer at Regis.

Lee has been a key player in multiple gold mining companies dating back to the 1980s when he ran Great Victoria Gold and Samantha Gold before moving onto Equigold, while also finding time to sit on the board of Bankwest.

It’s the people behind Emerald, including Eric Sprott as the money man with a huge North American following, which says what’s happening at Okvau is very much a starter project that will enable the team to find its development feet before moving onto much bigger deals.

Another point which underlines the argument that what you see today at Emerald will not be what you see in the next few years, is the amount of cash being assembled, with the latest capital raising of $75m, plus the $US60m available from Sprott sitting on top of the $10m in the bank as at December 31.

It’s a simplistic calculation but three sources of money indicate that Emerald has cash and project finance from Sprott totaling around $174m, which is interestingly more than the estimated $US91m Okvau capital cost.

A contingency allowance for cost overruns and unexpected problems is always a wise move to make in a country with no mining history, but Emerald appears to be putting in place more financial firepower than is needed for a relatively small development leaving open the question about deals after Okvau – which seem highly likely.

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