A great piece written by guest contributor Taylor

The metrics support any comparison!

It has certainly been a turbulent year for the markets while they come to a close but while you see headlines all the time about “Gold Plummets $40” or “Gold Plunges 3%”, none of the talking heads seem to mention that gold has moved from $1,400 to $1,700 this year while almost every other asset class has lost value besides Inverse ETF’s or very select equities.

Meanwhile Newstrike Capital (NES) continues to delineate its Ana Paula property (7,622 hectares) among it’s extensive 88,000 hectares of land holdings located in the Guerrero Gold Belt of Mexico. Currently Newstrike is trading at the same price it was 6 months ago when they released their bonanza grade hole of 230.95 metres @ 7.51 g/t au (hole 37).

Since NES has released some very impressive results to compliment hole 37 which was released in late April of this year.

January to April: $1.25 – $1.55

– 214 m @ 3.00 g/t au
– 282 m @ 1.40 g/t au
– 52 m @ 6.90 g/t au

April 21st – May 5th – $2.87

– 230.95 m @ 7.51 g/t au

Since May –

– 101 m @ 2.43 g/t au
– 15 m @ 26.0 g/t au
– 113 m @ 2.51 g/t au
– 190 m @ 3.52 g/t au
– 120 m @ 4.60 g/t au
– 119 m @ 3.76 g/t au
– 132 m @ 1.50 g/t au
– 135 m @ 5.57 g/t au
– 116 m @ 4.71 g/t au

Step-out 1 kilometre to SW – $2.84

– 21 m @ 1.34 g/t au
– 15.5 m @ 1.92 g/t au

NES doesn’t have a crazy share structure and has not financed since March so there is no reason like digesting shares that would explain the share price not moving higher based on world-class results.
Fully diluted the share count is 113 million with over 60% of shares held by institutions/insiders.
Based on a share price of $2.84 the market is valuing Newstrike Capital at $304 million dollars after $17 million in cash approximately.

Using two different valuation scenarios NES seems very undervalued relative to its peers:

Newstrike vs. Torex

NES – 113 F/D, $17 M Cash
TXG – 431 F/D, $120 M Cash

TXG Ounces: 5.0 Moz based on Q1 Updated Resource
NES Ounces: 4.0 + Moz based on Q1 Updated Resource

TXG Enterprise Value: $613 M / 5 (M Ounces) = $123 / oz
NES Enterprise Value: $304 M / 4.5 (M Ounces) = $68 / oz

This is assuming that TXG’s share price is already pricing in 5 Moz at Los Guajes East/West + EL which they likely haven’t fully yet.

I think it’s safe to say that NES’ grades inside their breccia are more impressive than any drill results drilled on Torex’s deposits to date. To date the breccia has been defined over a 250 metre strike length with 150 metre widths and drilled to 250 metre vertical depth, minimum. Based on a grade of 2.8 g/t au average I came up with between 2.3 – 2.5 million ounces of gold in the breccia. Based on drill results to date I think it’s safe to say the breccia will likely be open favourably to depth as it still remains open in all directions and the mineralization doesn’t seem to be a fluke as it’s very consistent within the breccia holes drilled to date.

A little history on Newstrike will reveal that they bought the property from Goldcorp when Goldcorp has already thought to have delineated 2.0 – 2.5 million ounces of low grade bulk tonnage gold on the property. With gold prices being much lower Newstrike was able to pick up the property and has since drilled it out over a 1,200 metre strike length with over 500 metre widths and to well over 250 metre depths in some areas. Goldcorp’s previous drilling had been drilled over 700 metre strike length roughly and about 400 metre widths but it took Newstrike’s highly successful geological team’s presence on the property to find the truth mother lode being the breccia.

The market has not given Newstrike any value for it’s halts nor the great news that has come with them and didn’t even pay attention to the 1 kilometre step-out released with all the noise coming from Europe and gold treading lower slightly with US dollar strength.

The step-out has huge implications for the deposit as it is slightly higher grade than the current low-grade bulk tonnage at Ana Paula which tends to average 0.6 – 0.8 g/t gold and between 10 – 20 g/t silver. With more drills on the property and the potential to infill between the step-out and current drilling or step-out from the step-out for continuity of mineralization – the possibilities are enormous. Already the deposit is looking like it could be 4.0 – 5.0 million ounces between the breccia and the lower grade but personally I think these numbers will look very conservative after another 30,000 metres of drilling into 2012. Tony Hayes himself of EuroPacific Capital who participated in the March financing with Newstrike put a $10.75 Strong-Buy target on NES with an estimate of 8-9 million ounces of gold at their Ana Paula property. \

The other way that Newstrike is significantly undervalued is in terms of a take-over offer:

The past 5 high-grade discoveries of 2010/2011 were bought out for an average of over $250 / oz of gold and currently NES trades for $67 / oz of gold. Ventana got over $400 / oz and Newstrike’s drill grades are higher than theirs on average comparing them to Newstrike’s breccia discovery:

Ventana 9 Best Holes

1. 106.45 m @ 7.81 g/t au = 825 grams
2. 112 m @ 3 g/t au = 336 grams
3. 80.9 m @ 8.62 g/t au = 697 grams
4. 27.4 m @ 17.44 g/t au = 477 grams
5. 33.4 m @ 16.8 g/t au = 561 grams
6. 1.9 m @ 541.8 g/t au = 1029 grams
7. 84 m @ 13.66 g/t au = 1147 grams
8. 110 m @ 4.8 g/t au = 528 grams
9. 60 m @ 10.1 g/t au = 606 grams

High: 1147 grams
Low: 336 grams

Mean: 689 grams per hole

This was also 2 years of discoveries not NES’ 8 months so far.

Newstrike 9 Best Holes

1. 316.95 m @ 5.8 g/t au = 1838 grams
2. 282 m @ 1.40 g/t au = 395 grams
3. 119 m @ 3.76 g/t au = 447 grams
4. 214 @ 3.00 g/t au = 642 grams
5. 190 m @ 3.52 g/t au = 669 grams
6. 116 m @ 4.71 g/t au = 546 grams
7. 135 m @ 5.57 g/t au = 852 grams
8. 33 m @ 12.00 g/t au = 396 grams
9. 259 m @ 2.57 g/t au = 666 grams

High: 1838 grams
Low: 395 grams

Mean: 717 grams per hole

Ventana was bought out for $1.5 billion dollars for 3.8 Moz of gold with additional silver in Colombia for roughly $375 / oz. Based on this metric, Newstrike would be worth over $15.00 a share. It’s only a matter of time before the remaining float is chewed up given the catalysts that Newstrike has on the horizon in the near future:

– Drill results every 4-6 weeks – breccia + low grade
– Additional Discoveries
– Resource Estimate late Q1, 2012
– Metallurgical work

Here’s a link to the recent Scotia Metals Conference:

NES_presentation_2011_11_30.pdf

December 11th, 2011
Categories: Uncategorized . Author: caliche