Carpathian Gold

Investment summary: Commissioning begins
In July 2013, Carpathian Gold announced that commissioning had begun at its open-pit Riacho dos Machados (RDM) project in Brazil and that the plant remains on target to start gold production by the end of Q313. Full production capacity is planned for Q413, with the company looking to produce an average 93,400oz gold pa over an initial eight-year period (with 100,000oz pa for the first three years). RDM has reached its target of mining 2Mt per month of material, with ore currently being stockpiled. The crushers have been commissioned and the rest of the plant is being completed. In its open-pit resource, RDM, has 4.5Mt ore at 1.86g/t to give 268,800oz gold measured and indicated and a further 15.1Mt ore at 1.56g/t, which gives 762,700oz gold inferred with a cut-off grade of 0.3g/t. Total cash cost is estimated in the 2011 feasibility study at US$560/oz.

Rovina project to produce pre-feasibility study soon
The gold/copper Rovina project in Romania was expected to release its pre-feasibility study in H213. This may be delayed as the company is managing its cash with care, with priority given to the RDM project. The total measured and indicated resource at Rovina, updated in 2012, showed 405.9Mt ore, with gold at 0.55g/t and copper at 0.16% to give 7.19Moz gold and 1,420Mlbs copper or 10.84Moz of Au equivalent. The PEA, issued in March 2010, looked for an annual production of 196,000oz gold and 49.4Mlbs copper over 19 years to give an estimated 340,000oz Au equivalent. The company currently plans to start production in 2017.

C$19m gross raised
The company had C$19.0m cash at 31 March 2013, with bank facilities for US$90m (with US$45m undrawn). In a private placing completed on 5 September, it issued 138.75m shares at C$0.14 for gross proceeds of C$19.425m.This money is targeted at ensuring successful start-up of the RDM project.

Valuation: US$560/oz cash cost gives leeway over gold price
While the company is vulnerable to moves in the price of gold (and copper in due course), the total cash cost of US$560/oz at RDM is low. In its feasibility study, the company estimates an NPV at 5% of US$172m (after tax), with gold at US$1,250/oz. At Rovina, with a gold price of US$1,450 and copper at US$3.0/lb, the NPV at 10% is US$1.1bn, based on the 2010 PEA. Assuming the first full year of RDM production is 2014, consensus estimates give EPS of US$0.04 for FY14e and a P/E of 3.8x.

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