Ovoca Gold's "significant" resource upgrade met positively by brokers

Ovoca Gold's (LON:OVG) news today that it has revealed a significant upgrade of resources at its Olcha project in the Magadan region of Russia was warmly welcomed by brokers Davy and Fairfax.

The project's resource now stands at 650,000 ounces of gold and 3.59 million ounces of silver - significantly more than last June, when the firm revealed a maiden JORC inferred gold resource of 344,000 ounces based on 16,455m of drilling across 144 holes.

Ovoca CEO Tim McCutcheon told investors: "Olcha is a complex deposit, with multiple fractures and faults within the ore body, which make exploration difficult.

"However, given the current gold and silver price environment, the grade at Olcha points to high value per ton ore, and so a patient approach to exploration is required to flush out the geological resource.

"For 2011 Ovoca intends to complete the permitting process for an exploitation license, which requires us to file a Russian standard resource statement and various other data (such as environmental and metallurgical studies) with the appropriate state authorities.

"We hope to have this process completed by the end of the year."

Meanwhile, the company plans to conduct geological work on Olcha to better its knowledge of the target and prepare it for exploration - focusing on collecting data from northeast and east of the known mineralisation zones."

Today's figures revealed that at a gold cut-off grade of 1.0 g/t Olcha contains 9.2 million tonnes of inferred resources at an average gold grade of 2.20 g/t for a gold content of 650,000 ounces gold.

The inferred resource also includes an average silver grade of 12.12 g/t for a silver content of 3.59 million ounces. The updated mineral resource capped gold assays at 20 g/t Au and 80 g/t Ag.

Today's estimate includes exploration drilling information completed in 2010 and in the first quarter of this year and is primarily focused on zone 2 and the south east extension of zone 1, said the firm.

The Olcha project is on the Rassoshinskaya license area, in the north-eastern part of the Magadan region, around 700km from Magadan and is a low sulphidation epithermal gold/silver deposit - the type that have been most successful in the Russian Far east in recent years.

The ore field is around 20 sq km and includes the  targets: Zond, Trigopunkt, zone 1, zone 2.

Analyst Job Langbroek, from house broker Davy, said the announcement was good news for the stock and examined the numbers at a 2 g/t cut-off.

"At a cut of grade of two grammes per tonne, the gold resource has been upgraded to just less than 400,000 ounces (compared to 99,000 ounces in June 2010). Importantly, the average grade has also been improved (from 3 g/t to 3.64 g/t).

"While the geology is complex and additional drilling is warranted to convert to indicated status and expand the resource further, the material increase is encouraging and underpins the gold potential in the region," he said in a note.

"Ovoca has a dual strategy of initiating small-scale production from its Stakhanovsky licence in 2013 and attracting a major joint venture partner to the Rassoshinskaya licence using the potential for very large gold deposits as the hook," he said.

Meanwhile, Fairfax, also housebroker, said: "The Olcha project is developing well with substantial open pit and further discovery potential. The company is well funded and positioned to take the Olcha project forward and to realise significant further value for shareholders."

The Rassoshinskaya exploration licence can be extended upon successful petition to the appropriate Russian authorities. The license terms ends on 15 February 2013. Ovoca  believes it will be able to secure a conversion of the license status on Olcha from exploration to exploitation. This means, in fact, a new licence typically for 25 years.

The firm also believes it can extend the remaining part of the Rassoshinskaya exploration license - typically for three years.