Matrix had a positive response to today’s drilling update from South America operating gold explorer Patagonia Gold (LON:PGD), which has made progress in its bid to expand the resource base of its key project.
Initial results from a 19,000 metre drilling campaign at the Cap Oeste gold-silver project in Argentina reveal that bonanza grades of gold and silver are present and the main shoot now extends down over 400 metres.
One 14.5 metre section of hole CO-168 contained 10.13 grams of gold per tonne and 143 grams of silver, while a 5.87 metre section of CO-170 contained 12.72 grams of gold 265 grams of silver.
Shoot E has shown the potential to define additional shoots at depth, that could potentially increase the global resource at Cap Oeste for future underground mine activity, the broker said in today's note titled "drilling at depth looks promising".
Matrix highlighted that both shoots remain open and drilling is ongoing.
The high-grade shoots located at depth are expected to be mined underground, with previous guidance estimating around 150,000 ounces. The company has earmarked a 19,000 metre drilling programme at Cap Oeste for 2011 with an aim to increase the resource base. The campaign is scheduled for completion in June 2011.
The Cap-Oeste project is part of the El Tranquilo property block, covering over 80 square kilometres, located 120 kilometres to the south east of the Lomada de Leiva gold project where development of a heap leach operation is currently in progress.
The El Tranquilo property hosts 10 other highly prospective targets in addition to the main Cap Oeste and COSE projects. Three new prospects have recently been identified as drill targets: the Monte Leon and Maciana and Tango.
The broker maintained its 70 pence target price, based on its DCF-derived valuation approach of 1x new present value (NPV). The stock last changed hands at 45.25 pence per share.
Matrix expects the company to post earnings before interest, taxes, depreciation and amortisation (EBITDA) of £4.05 million in 2011, which would then increase to £20.55 million in financial year 2012 ad capital expenditure would fall from £7.3 million to £5.9 million with no equity issues expected in 2011 and 2012. Revenues are expected to rise from £13.9 million in 2011 to £35.2 million the following year.