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Soho Resources (SOH.V) - new NI 43-101-compliant mineral resource raises valuation

Update by Objective Capital , May 20, 2008 download full report
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Key Points:

  • An initial mineral resource
    Mine Development Associates has calculated an inferred resource of 6.4 million tonnes, using an unoxidised gold-equivalent cut-off of 2.0 grams per tonne. The resource averages 1.34 grams of gold and 31 grams of silver per tonne, with 0.24 percent copper, 0.78 percent lead and 1.43 percent zinc. This translates to 276,000 ounces of gold, 6.43 million ounces of silver, 33.5 million pounds of copper, 110.5 million pounds of lead and 201.1 million pounds of zinc. Although the tonnage is greater than hypothesised, the average grades are significantly lower, which results in a neutral impact on our valuation.

  • Continued drilling yields further encouragement
    Soho continues its aggressive drill programme and assays from several zones continue to yield encouraging assays over significant widths. This supports our hypothesis that additional tonnage will be available at Tahuehueto.

  • Higher precious metal prices
    The price of gold surged to an all-time high early this year, topping US$1,000 per ounce for the first time, before retreating to US$850 per ounce to start May. The current price, just under US$900 per ounce, is significantly above the level last fall, at the time of our initiation note. Silver and copper prices are also higher than noted in our initiation note. These increases are only partially offset by lower current prices for lead and zinc.

  • Potentially higher capital costs
    The mining industry continues to experience cost pressures in excess of general rates of inflation, due to high demand for critical components, the rising price of oil, steel and other key commodities. Although most of these increases were factored into our earlier valuation, our revised model increases the capital cost by C$2m to account for inflationary pressures above our estimate. This exerts a slight negative influence on our valuation.

  • Our core valuation increases to C$0.27
    These factors are the driving force behind a modest net increase in our basecase valuation to C$0.27 per share, from the earlier C$0.25 per share noted in our December 2007 initiation note. Soho’s continued drilling offers further upside potential.

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