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Soho Resources (SOH.V) - aggressive drill programme has put it ahead of schedule

Full Report by Objective Capital , Jul 02, 2008 download full report
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Key Points:

  • After encouraging NI 43-101 results, Soho has moderated aggressive drill programme and is likely to raise new funds
    Soho has been aggressively drilling on several mineralised zones on Tahuehueto since the company commenced work on its initial resource calculation. At its peak, Soho had four drills turning on the project and it expects to have one, possibly two, drills running for the remainder of 2008. The company has over 60 new holes for inclusion in a new resource calculation and it anticipates expanding this total significantly through the summer and autumn. The aggressive drill programme has cut cash balances to around C$1m on our estimates and a further fund raise is likely to complete the 2008 programme.

  • Soho’s initial resource calculation yields equivalent of one million ounces of gold
    Soho Resources received its initial NI 43-101-compliant resource calculation in late April. Using a 2.0-gram-per-tonne cut-off, Tahuehueto contains an inferred resource of 6.4 million tonnes containing a gold-equivalent resource of approximately 1.0 million ounces. This includes 276,000 ounces of gold and 6.43 million ounces of silver, plus base metals credits for zinc, lead and copper. Soho expects to revise its estimate late this year. Based on drill results to date, the company could upgrade a substantial portion of the inferred resource to indicated and measured status and add further mineralisation to the inferred category. A lower assumed grade lowers our valuation, but our increased confidence in the resource provided by increased tonnages mitigates the impact.

  • Gold remains near a record high
    The price of gold remains buoyant. The metal briefly topped US$1,000 per ounce early this year and remains just under the US$900 mark, well above its long-term, inflation-adjusted average of US$550 per ounce. Silver and copper prices remain robust as well, but lead and zinc prices have been in a slump for several months. Declining metal prices have had a modest negative influence on our valuation since our May update, but they continue to support the economic potential of Tahuehueto.

  • Further cost inflation and a weak US dollar exert little further impact on valuation
    The mining industry continues to experience significant inflationary pressures because of shortages of goods, components and services. Our previous model handled much of these expected increases, and our revised valuation reflects a minor capex increase, mitigated by a lower operating cost estimate since our last update. The weak US dollar is not a major factor, as most of the company’s costs are denominated in, or are closely tied to the US currency.

  • Confirmed valuation more robust on gathering confidence
    Our revised core model places a value of C$0.27 per share on Soho Resources, unchanged from our previous estimate May 2008. Since then some metal prices have eased modestly and we have limited our mine plan to an underground only operation. However, it represents a material premium to the recent share price and is more robust given the gathering confidence surrounding the project. Our more optimistic assessment of C$0.41 per share, based on higher probabilities, reflects the potential offered by further drilling and upgrades to the mineral resource.

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