Sunday, March 31, 2013

Exeter After Extorre

I haven't checked out Exeter Resource Corp. (XRA / XRC.TO) since after they spun off some of their gold properties as Extorre Gold Mines.  Yamana bought Extorre for US$404M last year, mainly to develop the Cerro Moro property's very good grades.  This begs the question of whether Exeter would have better off if it had retained its Extorre projects.

Exeter's CEO and two Co-Chairmen are all geologists.  That's good.  Given their collective experience, they should have made significant progress on their Caspiche project in Chile by now.  The project info compares it to neighboring projects under development, but the problem with Caspiche is that their 43-101 MII estimates of Au at 0.5g/t and Cu at 0.22% grade are disappointing.  The 2P reserves from the pre-feasibility study aren't all that high either.  Their projected production costs need to be extremely low to make it worthwhile, but their estimated costs of $606/oz gold equivalent aren't all that low.  I'm disappointed that they still don't have attractive 2P reserves after the years they've spent exploring it, and that their projected IRR's are far below the "Rick Rule" 30% threshold.

Exeter's financial statements from September 30, 2012 show cash on hand of CAN$57M and a burn rate of about -$1.3M/month, down significantly from 2011.  They can survive for about two years but they need to show some serious progress in developing Caspiche, mainly by obtaining a deep-pocketed partner.  If they had held onto the Extorre properties the company could have had either a huge war chest from the acquisition or a development commitment from Yamana by now.  I prefer not to invest in companies that miss such opportunities.

Full disclosure:  No position in any companies mentioned at this time.