Below an excerpt of an interview with Kwong-Mun Achong, a mining analyst with Northern Securities with a focus on both precious and base metal equities. He previously worked at a Canadian bank owned dealer and at a U.S.-based brokerage. Achong Low obtained both his Master of Business Administration and Bachelor of Science degree in mechanical engineering from the University of Toronto. The full interview was published by The Gold Report.

TGR: In a report, you suggest that Sunridge Gold is one of the more misunderstood stories in the junior gold sector. What misconceptions about Sunridge would you like to correct?

KAL: The biggest misconception is that Eritrea is a bad place to do business. I visited the property in November and saw firsthand that it is a very determined country working to put additional business-friendly policies in place. The people are very friendly and hard working. The United Nations Security Council clouded that view when it put further sanctions on the country in December after some neighboring countries accused it of supporting militant groups, but I think the accusations are politically motivated. Russia and China both abstained from the vote. Also, Russia went on record saying that the evidence of Eritrea’s link to the planned attacks in Addis Ababa was not conclusive.

TGR: But there is unrest in the region. Are you factoring that into a discount rate?

KAL: Definitely. Whether it’s true or not, the market does perceive additional risk in Eritrea. We only use a multiple of 0.4x our net asset value whereas other companies in our space could get from 0.5–1.0x.

TGR: What were your thoughts about the Asmara project when you visited?

KAL: It is very close to infrastructure. You can drive to the site in a matter of minutes. The topography is very supportive of open-pit mining as it is very flat with lots of room to put the mill facilities and tailings pond. It’s also very close to a willing workforce.

TGR: Are there any majors operating in Eritrea right now?

KAL: None that I know are active in the area. There are a number of Chinese companies with interest including the Shanghai Construction Group that recently bid for Chalice Gold Mines Ltd. (CXN:TSX; CHN:ASX), though the others have nothing as advanced as Sunridge or Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.A).

TGR: Does Nevsun have the cash flow to pull off a takeover?

KAL: For sure. It is producing a lot of gold at one of the lowest cash operating costs in the industry. Last year it produced about 380 thousand ounces of gold and the cash costs for the first three quarters were about $285/ounce (oz). However, I’m not sure that, if it were to expand, it would want to get another asset in Eritrea.

TGR: On the one hand, you’re saying there’s not as much risk as people think, but in this example, you are intimating that there is still a significant amount of risk there?

KAL: There is perceived risk. If a company like Nevsun has a main asset there and it’s not getting the full value that it should for it, then there’s no need to wait around for the market to clue in. It can just take its cash and go after something that the market will recognize.

TGR: What should move Sunridge stock to your 12-month target price of $1/share?

KAL: Of its four main deposits, it has combined three of them into one prefeasibility study due out in about four months. The fourth deposit, the Debarwa deposit to the south of Asmara, has a feasibility study due in the next couple of months. As the market sees that there is real economic benefit to these projects and there is a clear line to their production, Sunridge should get rewarded for that.

TGR: Debarwa is really the crown jewel here, right?

KAL: It’s the highest grade and it may be the closest to production, though I think the crown jewel is Emba Derho, with 62 Mt of VMS.

TGR: What’s the resource there?

KAL: It’s almost 600,000 oz gold, 1 Blb copper and 2 Blb zinc at Emba Derho.

TGR: What’s the estimated production timeline there?

KAL: It could be as early as 2015. After the feasibility is completed, it could start applying for its permits. Sunridge has already started talking with government officials, so I don’t think that will take as long as it has for other companies, like Nevsun.

TGR: Are there any other companies that you would like to discuss today?

KAL: It’s not one that I cover, but it is in a very stable country: Seafield Resources Ltd. (SFF:TSX.V:). It is advancing its Quinchia gold project in Colombia. It is expecting a resource update at its Miraflores deposit by the end of this month and a PEA in a few months. Quinchia currently has 2.5 Moz in global resource and with the new management appearing settled, the relative valuation and news flow makes this stock one to watch.

TGR: Do you have some parting thoughts for our readers?

KAL: Investors need to take the speculation out and do additional due diligence because it’s a stock-picking market. Investors need to look for companies that have good news flow, really good management and an asset that is good enough to put into production when they invest in it.

TGR: Thanks.

Kwong-Mun Achong Low is a mining analyst with Northern Securities with a focus on both precious and base metal equities. He previously worked at a Canadian bank owned dealer and at a U.S.-based brokerage. Achong Low obtained both his Master of Business Administration and Bachelor of Science degree in mechanical engineering from the University of Toronto.

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