AND overnight reported further high-grade drilling results from ongoing drilling at its 100% owned Cerro Negro project in Argentina. EDD-749 intersected: 21m @ 32.3g/t Au, 904g/t Ag from 197m 3m @ 7.9g/t Au, 330g/t Ag from 221m, and 6m @ 4.7g/t Au, 70g/t Ag from 250m EDD-748 intersected: 15m @ 10.5g/t Au, 95g/t Ag from 361m 8m @ 32.4g/t Au, 570g/t Ag from 382m EDD-744 (2m @ 6.4g/t Au, 200g/t Ag from 119m) defined the top of the Eureka West ore shoot, while EDD-740 and EDD-741 defined the lower limits of mineralisation. AND reports that an additional step-out hole 100m west of ERC-747 has intersected approximately 12m of vein material, while another 50m step-out hole (EDD-761) is currently drilling ahead in vein. Assays are anticipated by end CY07. Infill drilling program on track for year-end completion. Brownfields exploration program set to accelerate. Impact
Keeps getting bigger. Eureka West continues to demonstrate exceptional continuity and is rapidly evolving as one of the premier recent gold discoveries in our universe. Drilling is now circa 200m west of the Phase 3 limit, and continues to intersect prospective vein material. Grade uplift the catalyst. Infill drilling underway is the short-term catalyst to increase contained metal (our model assumes mill grades of 6g/t Au, 70g/t Ag). We are confident of material increase, noting a 20% grade uplift adds 160koz to the current (and growing) resource at Eureka of 624koz. We anticipate a resource upgrade Q1 CY08 with completion of the current infill program (AND has completed 12,000m in 10-weeks). Focus shifting to brownfields exploration. While Eureka West has delivered over and above our initial expectation, AND is now becoming limited in its ability to drill out further western extensions on account of increasing topography, coupled with EW's plunge component. Consequently, we expect focus to shift to brownfields targets at Eureka SE Vein, North Vein, as well as drill testing the remaining 4km of outcropping vein at Eureka Main Vein. We note recent geophysics also highlights the potential for a parallel subcropping lode at Eureka West and we understand this will be drill tested during the current Phase 4 program. Critical mass approaching. In our view, CN is fast approaching sufficient scale to be noticed by acquisitive majors. We consider the prospect of a +200kozpa operation, sub US$250/oz cash costs, excellent metallurgy, and quality exploration potential will garner strong interest in the current gold environment. Valuation and assumptions. All metrics in the attached file are based on Patersons resource target at Cerro Negro (CN) of 2.5moz. This is based on only current prospects worked-up (equating to circa 1km of 20km of outcropping vein horizon on-tenement). While AND is trading inline with our A$1.82/sh valuation, we retain our BUY recommendation on expectation of: Material grade uplift (Q1 CY08), Additional resource extensions from the current program, and Likely justification of an 'acquisition premium' should CN continue to meet our growth aspirations. We reiterate, grade is the key. Assuming AND achieves a LOM head grade of circa 10g/t Au (Eureka only), our valuation increases to A$2.51/sh (assuming cash costs of sub US$200/oz). While we await the Q1 CY08 resource upgrade to adjust our assumptions, we are cognisant of grade sensitivity on our valuation. ----------------
