some guy said buy

Gold trashes and so does the IGR share price
IGR; Buy up to 20 cents

In line with the Diggers ‘n Dealers conference earlier this month, Integra released the results of the Randalls Pre-feasibility Study which provided a base case for the development of the Randalls gold project.

“Integra has alternative options to the current re-development of the New Celebration mill at Salt Creek. These involve toll treating options with a significant reduction in capex..”

The results were encouraging, particularly given the open pit production head grade would be around 3.4g/t – well above some struggling WA gold operations with head grades around the 2g/t level.

The key findings of the pre-feasibility study are as follows:

Open pit optimisations ‘capture’ 508,000 resource ounces
Base case production of 483,000 ounces recovered
Diluted open pit production grade of 3.4 g/t gold
Average production of around 120,000 ounces of gold per year
C1 cash operating cost of A$504 per ounce
Net operating revenue of $216 million at A$950 gold price
Pre-tax return of A$129 million (after full capital depreciation during ‘base case’ production)
A project pre-tax IRR of 41%
Targeting a 10-year mine life
This ‘base case’ development plan involves mining three open pit sources (Salt Creek, Maxwells and Cock-eyed Bob) feeding a central processing plant located at Salt Creek, east of Kalgoorlie.

Operating costs at A$504 per ounce.

With the rapidly falling gold price and resource equity market turmoil, the ‘overhang’ of the $88m capex has significantly undermined the Integra share price – even if half of it may be debt funded.

The company is exploring its options in terms of meeting this capital requirement, but nevertheless one observes that there are several mills in the area that have significant spare capacity and the 3.4g/t head grade is likely to easily cover transport costs and provide a healthy margin. Members will recall that the Randalls project is only 60km from Kalgoorlie.

Given the attractiveness of the head grade and the current high power cost (oil price), it may well be that a toll treating arrangement could be more attractive than actually re-constructing the New Celebration mill at Salt Creek.

Stock Resource Recommendation
Despite the malaise affecting the gold sector and resources in general, Integra has a valuable gold resource and a viable project. In particular, the ‘capex’ overhang may suddenly disappear if the company decides to pursue a toll treating strategy – which in fact may prove more profitable.

We expect that Integra will be producing gold in 2009 – early 2009 via toll treating or late 2009 through the re-development of the plant. Management has stated clearly that it is not raising equity at low (current) prices and we believe it is likely to prefer the toll treating route. Of course a friendly takeover may not be out of the question.

Hence, Stock Resource continues to recommend Integra as a Buy up to 20 cents for Member without current exposure.