research note from grange securities

Recommendation:.........................SPECULATIVE BUY Share Price:...............A$0.44
Price Range....A$0.13-A$0.46
Shares on issue:........113.6M Options:.....................13.5M
Undiluted MCap:.....A$55.9M

Management
Non Ex. Chair – Robert Reynolds
Managing Dir. – Rohan Williams
Non-Ex Dir. – David Quinlivin
Non-Ex Dir. – Stephanie Unwin

With the release of further drill results from the Trident discovery we continue to recommend a SPECULATIVE BUY with an expectation of the discovery to build beyond a potential resource size of 0.5Moz as drilling continues at depth. We therefore see minimal downside to the share price with Avoca potentially in first production within 12 months.
The development options for the discovery are a stand alone plant which would see Avoca become a producer in their own right in 2006 at an annualised rate of over 100,000ozpa. Alternatively a higher grade component (~250koz) can be mined regardless and toll treated through St Ives at Kambalda.

Trident deposit indicative of 0.5Moz resource

Avoca has released a further three drill holes from the Trident discovery at its 100% owned Higginsville gold project in WA since our last report in early December 2004. In our view the drill holes provide conclusive evidence that the Trident discovery has a minimum resource potential size of 0.5 to 1.0Moz which would be amenable to bulk underground mining. The broad nature of the mineralisation marks it as differing significantly to the Poseidon South deposit’s narrow vein mineralisation.
The recent results include HIGD10 34m at 2.2g/t Au, HIGD12 14m at 4.3g/t Au and HIGD13 70m at 4.2g/t Au. The deposit now has six drill holes which have returned economic mineralisation over a strike length of 200m and down dip extent of 250m. The deposit is open down plunge and down dip. A hole is currently being drilled 80m down dip of HIGD13 with results due out in approximately three weeks.
On a base case scenario we estimate that the current drill defined Trident deposit will provide a high grade (7-8g/t Au) mineable reserve of 250koz including the Eastern zone. A ball park cost to develop the deposit is anticipated as A$5m to fully develop with the ore to be toll treated most probably through the St Ives plant at Kambalda. Assuming a cash margin of A$200/oz this equates into A$50m in cash flow over a 4 year period or A$13m per annum. First production could occur as early as December 2005.
Assuming a large tonnage scenario we estimate the minimum mineable reserve size of the current drill defined Trident deposit to be 0.5Moz (assuming a 100% conversion of resources to reserves). Under this scenario total capital costs including drill out we estimate at A$20m which includes approximately A$10m for a second hand plant. Assuming an initial 5 year mine life producing 100,000oz pa (1mtpa) would provide a minimum cash flow of A$10m per annum. First production would be anticipated in 2006. Under this option scaling the project up would significantly enhance the economics (say to 1.5mtpa).
The mineralisation is blind to the surface commencing at 300m below surface and lies 200m north of the Poseidon South underground.
Due to the bulk nature of the deposit with an average width of 35m we estimate 2000 ounces per vertical metre. Therefore we estimate each additional 50m defined with depth will add 100,000 ounces to the orebody. Once the deposits’ dimensions and plunge extent are known success from depth extensional drilling will be highly significant and price sensitive to Avoca.
Continuing success at Trident will further re-rate Avoca beyond current levels as the deposit starts to approach 1Moz which we see as easily achievable after the current 8 week drill campaign to define an indicated resource of the current extent of the deposit. We strongly recommend a Speculative BUY.


All looks well for AVO. But I'm a bit biased, I'm glad I already own stock...
Could these things go to a $1??