blue ocean spec buy 44c

Sovereign Gold Ltd (SOC) - Initiation of Coverage (SPECULATIVE BUY, $0.44 Valuation)

Potential multi-million ounce gold system in NSW
SOC is exploring one of the most promising gold plays in Australia: Mt Adrah. Hobbs Pipe 1 (650koz Au) could form the centre of a significant gold province (target +3.2Moz Au) with potential for bulk mining. Drilling is in progress on high priority 3D-IP targets.

Key points
· Exploring for Intrusive Related Gold Systems (IRGS), a recently identified deposit type that can yield large (+3Moz Au) resources.
· Mt Adrah Project (NSW): JORC resource at Hobbs Pipe 1 intrusion is 650koz Au @ 1.24g/t – recent drilling includes 886m @ 1.2g/t; Conceptual Exploration Target of 3.2-4.6Moz Au.
· Potential for multiple mineralised areas at Mt Adrah – drilling program under way.
· Possible bulk surface / underground mining (subject to feasibility studies).
· Preliminary metallurgy shows overall 92% recoveries by flotation and BIOX.
· Leveraged to combined $21m exploration spend by JV partner SUGEC (Jiangsu) on Uralla-Rocky River IRGS; also owns 80% of ASX:PMR.
· Market capitalisation: $33m, share price $0.22.

Blue Ocean View
SOC has taken a modest sized and “refractory” gold resource at Hobbs Pipe (Mt Adrah), and by application of the IRGS exploration model and some deep drilling demonstrated a gold play with multi-million ounce potential. We value SOC at a risk-adjusted $0.44/sh ($67m), including its major shareholding in listed ASX:PMR and JV spending by SUGEC in northern NSW. The key to bridging the gap between this valuation and the current share price will be exploration success over the coming 12 months, primarily at Mt Adrah