Sonoro Gold Corp (TSX-V:SGO, OTCQB:SMOFF), the gold mine developer, has a 'storied management and a great asset' in its Cerro Caliche project in Mexico, which it is advancing to production.
That's the view of Equity Research, which has published a note on the Toronto-listed small-cap, which aims to develop a 15,000 ton per day (tpd) heap leach mining operation (HLMO) and use the generated cash flow to fund further exploration and development.
Noting the stock is a 'speculative high-risk' investment, Equity analysts pointed to the firm's experienced management, singling out Jorge Diaz, its vice-president of operations.
He is an original Glamis Gold mine developer and more recently designed and oversaw the construction of, and put into production, Alamos Gold Inc's Mulatos mine, said the analysts.
"Alamos was trading around $0.50 when Jorge began designing the mine and once it was in production, its shares immediately embarked on an eight year ascent to $21.58."
READ: Sonoro Gold closes previously announced non-brokered private placement of 16,666,667 units for aggregate gross proceeds of $3 million
The recent preliminary economic assessment (PEA) adds a new level of certainty regarding the project's viability and way forward, said the analysts.
The PEA established that the initial phase of production had a pre-tax net present value (NPV) of US$68.7 million with an internal rate of return (IRR) of 52.7% (using a US $1,750 gold price and a 5% discount rate) while during years one to three, annual production was estimated at a slightly lower 56,500 ounces of gold-equivalent (AuEq) of payable gold but at a higher average grade of 0.51 grams per tonne (g/t).
Equity Research noted that Sonoro was also "exceptionally leveraged" to the gold price because every US$100 per ounce gold price increase potentially added US$5.7 million to its cash flow.
"Sonoro’s fully diluted market capitalization is currently US$32 million - worth emphasizing is that SGO’s leverage on the price of gold, once it gets closer to becoming a producer is considerable, for example should gold’s price rise to US$2,300 per ounce SGO’s initial cash flow would exceed US$67 million and its implied market capitalization at 3 times cash flow would be US$201 million or on a per share basis $1.00 per share," it added.
Analysts also noted that management’s ultimate strategy was then to use the cash flow to continue drilling, to define its targeted 1.5 to 2 million ounces of gold and increase the gold resource and the mining operation.
Finally, the research house noted that in the recent $3 million private placement, the company's chairman John Darch, CEO Ken MacLeod and VP Operations Jorge Diaz and VP Exploration Me Herdrick all took part and together subscribed for a substantial 20%.
Sonoro Gold shares stand at C$0.16 each in Toronto.
Contact the writer at giles@proactiveinvestors.com