MOD Resources' Sams Creek unit slashes project value, resulting in loss
The owner of the Sams Creek Gold Project, which sits atop what could be New Zealand's biggest undeveloped gold deposit, has slashed the value of the resource and taken impairments of about $7.7 million after stopping work on the site last year pending a pickup in prices.
Sams Creek Gold Ltd, which is owned by ASX-listed MOD Resources, posted a loss of $7.3 million in calendar 2014, from a year-earlier profit of $1.2 million. Sams Creek, in the South Island's Golden Bay region, isn't producing, so the company has no revenue.
According to its accounts, Sams Creek took an impairment charge on the future recoverability of exploration expenditure of about $6.6 million, slashing its value to $3.1 million from $9.5 million. The company adopted that $3.1 million as the appropriate carrying value of the project as at December 31, about the mid-point of an independent valuation it commissioned of about $2.3 million to $4.3 million.
The accounts show it also impaired all of the $1.1 million investment interest in the project in 2014.
MOD Resources has a 60% interest in the Sam's Creek Gold Project, with the remainder held by OceanaGold [NZX: OGC]. MOD Resources farmed into the project by funding the staged exploration programme and issuing shares to OceanaGold and has the opportunity to reap up to 80% of eventual earnings.
Sams Creek is its second project after the Mahumo copper-silver project in Botswana. Exploratory drilling in 2013 intersected "numerous high-grade gold zones" including 19.6 metres at 6 grams of gold per ton of raw material. The total resource was estimated at one million ounces of gold.
In July last year, drilling at Sams Creek was put on hold in the face of weaker prices for gold and is expected to resume when there is a sustained improvement and "MOD can secure funding to advance the project towards potential production." In MOD Resources' first-quarter activities report, the company described Sams Creek as "a substantial gold deposit with excellent potential for extensions."
The spot price of gold peaked at $US1920.30 an ounce in 2013 and was recently at $US1169.01 an ounce, a decline of almost 40%.
MOD Resources shares last traded at 0.04Ac on the ASX and have shed 88% of their value in the past two years. OceanaGold were last at $3.16 and have soared 139% in the past two years.