The market doesn’t really understand Sunrise Resources (LON:SRES) potentially valuable barite project, according to Northland Capital analyst Andrew McGeary.
The analyst points out that the current Sunrise valuation – at 2.65 pence a share it is worth £8.3 pence a share – almost entirely relates to the Long Lake gold project in Canada.
However barite is a valuable commodity, with good demand and the project could provide near term cash flows, McGeary said.
This morning Sunrise told investors that it has received positive results from a concept study for an underground mine development at the Derryginagh barite project in south-west Ireland.
The company said it will carry out a more detailed evaluation of the project and has committed to a drilling programme aimed at the definition of a JORC mineral resource.
The study by independent consultants Saint Barbara LLP suggests that a profitable operation could be developed for an output of at least 50,000 tonnes per year of barite based on their estimates of mining and processing capital and operating costs and on published barite sales prices.
“We believe that the barite project is not widely understood by the market,” McGeary said in a note to clients. “Barite is a valuable commodity with good demand from the drilling muds business and as a high value paint filler (as intended at Derryginagh).
“The current price is £195-220 per tonne delivered in the UK suggesting revenues of c. £10 million per year.”
McGeary adds: “Whilst detailed economics and the all-important NPV are not provided at this stage, an independent report suggesting potential for the project is a positive, if early, indication.
“Long Lake is the key asset, likely to lead the share price but we value the risk diversification of the barite project and, in particular, its potential to offer near term cash flows.”
The Derryginagh mine was worked in the period 1864-1922, supplying white barite to the local paint industry. The mine workings extend over a strike length of 200 metres and to a maximum depth of 60 metres.
In the 1980s four holes drilled by Dresser Minerals International intersected the barite vein over an average true width of 2.4 metres at about 100 metres below surface and over a total strike length of 200 metres, with the vein being open along strike and at depth.
The concept for Derryginagh is for a modest-sized underground mining operation feeding a low cost gravity separation plant producing high-value filler grade barite.
Barite is the mineral form of the chemical barium sulphate. Its properties make barite suitable for use as a weighting agent in oil industry drilling muds and as higher value industrial filler in, for example, paint plastics, brake linings and acoustic panels.
Sunrise said there is a significant demand for white paint-grade barite in Europe but no major mine supply outside of China and India.
“Consequently there is a niche opportunity for a new European supplier as China's own internal demand limits traditional exports. The price currently quoted for white paint grade barite is £195-220 per tonne delivered in the UK,” it added.