Stockhouse Movers & Shakers: Analyst sets 5M target for Newstrike

With $40 million in the bank, cashed-up Vancouver junior is gearing up to announce a resource estimate for its Ana Paula gold project in Mexico.

In the aftermath of the recent Prospectors and Developers Association of Canada trade show in Toronto, the talk has been about cash-strapped juniors needing project capital.

Newsletter writers such as Brent Cook and Mickey Fulp were telling reporters that companies with average projects and only a couple of million dollars in the bank might find themselves in trouble soon.

“This may have to do with the global financial situation, especially in Europe,’’ Fulp told a television interviewer during the trade show.

Thankfully, no such problems exist for Newstrike Capital Inc. (TSX: V.NES,Stock Forum), a Vancouver exploration junior which recently raised $24.8 million from a bought deal private placement, priced at $3.10 a share. Trading at $2.85 this week, the junior has a market cap of $302.6 million, based on 106.2 million shares outstanding and $30 million in the bank.

Proceeds from the financing are earmarked for drilling in Guerrero State, Mexico, where the company plans to spend up to $12 million this year on an advanced stage gold discovery known as the Ana Paula project. It is located on 7,622 hectares of mineral claims that were acquired from Goldcorp Inc. (TSX: T.G, Stock Forum) (NYSE: GG, Stock Forum) in June 2010.

As Stockhouse has already noted, Newstrike is drilling in a rich gold district that hosts Goldcorp’s Los Filos mine, which currently ranks among Mexico’s largest gold mines, with 11 million ounces in reserves. On an adjacent property, Torex Gold Resources Inc. (TSX: T.TXG, Stock Forum) is getting set to put its Morelos project (3 million ounces) into production by the end of 2014.

When Newstrike acquired the property from Goldcorp, the Canadian mining giant had completed 11 drill holes in what was then a grass roots bet.

But in the last 12 months, interest has been fueled by drilling results from a high grade breccia zone, raising speculation that Ana Paula is rich enough to support an open pit gold mine.

“We believe that there is potential for 3-5 million ounces at Ana Paula, a resource that would attract interest from their neighbours, or other mid-tier players in the area,’’ wrote Cormark Securities Inc. analyst Richard Gray, following a trip to the exploration site.

(Cormark was part of the underwriting syndicate that participated in the recent $24.8 million bought deal financing, but has not set a target for Newstrike’s stock price).

In an interview with Stockhouse, Newstrike chief executive officer Richard Whittall said he has been encouraged by the discovery in November of gold-bearing zones, located to the southwest of the breccia zone. “We think we are in an area that is close to the source of mineralization,’’ said Whittall. “We hope to have results that will validate that.”

A 53-year-old investment banker Whittall said Newstrike has no interest in taking the project all the way to production. “My mandate from day one has been to define it, grow it, and partner or sell it,’’ he said.

As Newstrike controls 88,950 hectares in the Guerrero Gold belt, making it the largest holder of mineral claims in the area, Whittall expects drill crews to find more gold.

“We think we are going to make multiple discoveries.’’

Meanwhile, the company is getting advice when needed from Lukas Lundin, the Vancouver-based Chairman of Lundin Mining Corp. (TSX: T.LUN, Stock Forum) and owner of just under 10% of the company.  (Whittall said Lukas Lundin and his family own between 30% and 40% of Newstrike).

For its part, Newstrike hopes to be in a position to make an initial resource estimate for Ana Paula by June 2012. “The best way for us to create value is to drill and add ounces,’’ Whittall said. “When you partner or sell out, you only get paid for ounces,’’ he said.

In keeping with that plan, Newstrike is planning to move two more drill rigs onto the project site, adding to the four which are already in place.