On June 29th EGO announced it received Project Permit Approval (PPA) for its Eastern Dragon Project in China: The PPA is the most significant permit required for Eastern Dragon and its receipt improves our confidence that the asset will enter production by mid-2016 (updated schedule from EGO is pending). EGO had indicated with its Q1 results on April 30th that it expected the PPA by May. On slightly adjusted parameters (i) modelling reserves only; and (ii) production start up to mid-2016 (from late 2015), we estimate a NAV of US$265M for EGO's 75% stake. We previously valued the asset at $88M with a 75% risk discount applied.
EGO to recommence site work in July: EGO will focus initially on completion and testing of the mill circuit along with power and water supplies. Earthworks are expected to start late in Q3/15, pending the timely receipt of outstanding forestry permits (CS sees low risk of these being a hold up).
Eastern Dragon to become EGO's lowest cost asset: EGO estimates Eastern Dragon will deliver 70kozpa of gold at cash operating costs (net of by-products) of US$175/oz, with silver production of 570kozpa. We estimate a 10 year mine life based on reserves of 744koz.
Greece referendum heightens risk (albeit still less than 50% in CS view) of a Greek exit from the Euro: Currently 26% of our NAV (US$1.51/sh of our US$5.73/sh NAV) lies in EGO's Greek assets. Please see our recently published reports for our economists' view (Greek crisis - Narcissus and Nemesis) on the Greek crisis and our global equity strategist's view (Greece - where now?). The CS view is now for a 1/3 probability of a Greek exit, with markets pricing in a 1/5 probability at the Friday close.
If Greece exits the Euro, our key concerns regarding EGO's Greek projects are (i) in-country inflation, which could offset the benefits of a currency devaluation; (ii) capital controls and ability to repatriate funds; and (iii) ability to source quality imported labour & materials.
