Why Esperanza Resources is One of The Most Undervalued Commodities Stocks Today

Drill roads on the Las Calabasas zone at Cerro Jumil

View of the drill roads on the Las Calabasas zone at Cerro Jumil.

Esperanza Resources (EPZ – $1.15) announced more positive analytic results from its 100% owned Cerro Jumil gold project in Morelos State, Mexico. The results were from infill drill holes (see map below) and intersected gold mineralization with values between 0.43 grams and 2.98 grams of gold per tonne.

An updated resource estimate, based on 63,000 metres of drilling, compared with only 41,000 metres in the previous estimate, is expected to be published in the course of this quarter.

Resource Expansion Potential

In September of 2010, a resource estimate was produced for Cerro Jumil based on 41,000 metres of drilling by Esperanza and previous owners of Cerro Jumil. It included 935,000 gold equivalent ounces in the measured and indicated categories and 233,000 gold equivalent ounces in the inferred category.

Based on those results and the recommended work in the report, Esperanza initiated a new drill program in April of 2011 to both upgrade areas with an inferred resource by infill drilling, and to expand the resource by step-out drilling. Since then, 22,000 additional metres have been drilled with overall solid gold grades.

Category Tonnes (000) Au oz (000) Ag oz (000)
Measured 10,111 282 296
Indicated 24,295 630 1,655
Inferred 8,596 230 1,904
Total 43,002 1,142 3,855
The current NI 43-101 compliant resource estimate for Cerro Jumil from September 2010.

For example, analytic results from step-out drill holes on the Las Calabazas Zone, one of the three gold zones that comprise the 2010 resource, indicated an extension of the gold mineralization with gold values between 0.90 and 3.86 grams per tonne. Also, expansion holes in southwestern direction all intersected gold mineralized veins grading between 0.37 and 2.25 grams per tonne, indicating an extension of the gold mineralized Southwest Extension Zone.

Additionally, lots of successful infill drilling was conducted between the West Zone, Las Calabazas Zone and Southeast Zone, which undoubtedly will move much of the previously inferred resource to the measured and indicated categories.

All these positive analytic results from both step-out and infill drill holes should lead to a significant expansion of Cerro Jumil’s resource. We also believe that the percentage in the measured and indicated categories will be higher (80% in the 2010 estimate), thanks to the large amount of infill drilling conducted since.

Moreover, Esperanza still has two drill rigs operating at Cerro Jumil to drill the Southwest Extension and Colotepec Zones. Based on initial analytic results from these areas, described above, it’s fair to assume that the resource will be expanded even more. In fact, it wouldn’t be a surprise when the following resource estimate moves the property to 2 million gold equivalent ounces.

Conclusion

We like Esperanza Resources for the following reasons:

  • Its 2010 resource estimate for Cerro Jumil of 1.168 million gold equivalent ounces is bound to be expanded in the next few weeks when an update resource report is published;
  • The property’s resource still has plenty of expansion potential in the vast Southwest Extension and Colotepec zones;
  • Cerro Jumil is located in mining friendly Mexico, an advantage that can’t be underestimated;
  • Based on the 2010 resource estimate, a Preliminary Economic Assessment (PEA) from September 2011 showed that Cerro Jumil is a typical open pit, heap leachable mine with an estimated average production of 103,000 ounces of gold per year, which can be mined at $499 per ounce;
  • Esperanza currently has about $45 million cash in the bank, which is enough to continue the development of its properties and to bring Cerro Jumil into full feasibility in the course of 2012 with the ultimate goal of advancing the property to production;
  • Additionally, Esperanza owns 26.8% of the outstanding shares of Global Minerals Ltd. (TSX: CTG), today worth about $8.9 million. Global Minerals owns 100% of the Strieborná property in the Republic of Slovakia, a well defined silver/copper resource ready to be advanced to the feasibility level;
  • Finally, Mr. Greg Smith, Esperanza’s President and CEO and Mr. Laurence Morris, the Company’s COO were both previously engaged at Minefinders Corporation, which was recently acquired by Pan American Silver (TSX: PAA) in a deal valued at approximately $1.5 billion. Their Minefinders past shows they have the knowledge and the necessary skills to move a project like Cerro Jumil towards production.

All in all, Esperanza Resources is definitely one of the most undervalued commodities stocks out there with little downside risk. We have a price target of $3.78 on the stock. I’m adding shares to my position at these low valuations.

The drill hole location map for the Cerro Jumil project

Hole
Number
From
(meters)
To
(meters)
Interval
(meters)
Gold Grade
(g/t)
DHE-12-96 37.5 105.0 67.5 1.01
  135.0 147.0 12.0 1.56
DHE-12-97 79.5 91.5 12.0 1.26
  159.0 195.0 36.0 0.43
DHE-12-98PQ
Metallurgical Test Hole
DHE-12-99PQ
Metallurgical Test Hole
DHE-12-100 189.0 222.0 33.0 1.07
DHE-12-101PQ
Metallurgical Test Hole
DHE-12-102PQ
Metallurgical Test Hole
DHE-12-103 108.0 135.0 27.0 0.67
  166.5 180.0 13.5 0.87
  210.0 219.0 9.0 1.14
  250.5 262.5 12.0 1.66
DHE-12-104PQ
Metallurgical Test Hole
DHE-12-105 40.5 145.5 105.0 1.13
DHE-12-106 139.5 153.0 13.5 1.27
  282.0 298.1 16.1 1.12
DHE-12-107 33.0 181.5 148.5 0.72
includes 118.5 136.5 16.5 1.91
DHE-12-107 220.5 237.0 16.5 1.59
DHE-12-108
No significant intercepts
DHE-12-109 58.5 97.5 39.0 1.35
includes 58.5 70.5 12.0 2.98
DHE-12-110 228.0 240.0 12.0 2.32
DHE-12-111 18.0 25.5 7.5 1.11
  37.5 52.5 15.0 0.82
  69.0 76.5 7.5 0.93
DHE-12-112 109.5 124.5 15.0 0.79
DHE-12-113 139.5 165.0 25.5 1.14
DHE-12-114 30.0 36.0 6.0 1.03
  63.0 70.5 7.5 1.18
  85.5 114.0 28.5 1.39
DHE-12-115
No significant intercepts
DHE-12-116 4.5 64.5 60.0 1.10
DHE-12-119 151.5 177.0 25.5 0.58
DHE-12-121 55.5 88.5 33.0 1.14
  174.0 298.7 124.7 1.54
DHE-12-123 90.0 109.5 19.5 0.81
  216.0 225.0 9.0 2.46
Drill intercepts from holes DHE-12-96 through DHE-12-123 from the Cerro Jumil gold property in Mexico. Note that the drills were also employed to collect large diameter core from various locations and depths of the deposit for metallurgical testing. Source: Company press release.


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