La Mancha works to gain market favour

It’s been nearly two years since a reverse takeover put Areva’s gold assets into La Mancha Resources’s (LMA-T, LACHF-O) hands (then listed on the TSX Venture Exchange) — effectively creating a gold spinoff for the French uranium giant.

But despite hopes of duplicating the success that Cameco (CCO-T, CCJ-N) gold spinoff Centerra Gold (CG-T, CAGDF-O) has had–it’s built up a market capitalization of more than $3 billion — La Mancha has had difficulty winning over the market.

The company suffered a 70% cut to its share price over the course of 2007, falling from the $1.45-range in January down to around 40 in December. While it has rebounded lately — at presstime its shares were trading at 52 — its market cap of roughly $73 million is still far from where the company thinks it should be.

“It’s a big understatement to say we are undervalued,” says Martin Amyot, vice-president of corporate development for La Mancha.

Amyot points out that just one of La Mancha’s projects — its Frog’s Leg project in Australia — has a recently completed feasibility study that put its net present value (NPV)

at 33 per share — just 19 less than the company’s current share price. And La Mancha has two producing mines and another key development project in addition to Frog’s Leg. It should be noted, however, that the NPV was calculated using a 0% discount rate.

Amyot explains the perceived disparity between the company’s present value and its share price as part of the logistics of revamping operations. Where they had been run as non-core assets by a large state-controlled entity, Areva, they have been retooled by a more nimble, gold-focused, market-driven company — La Mancha.

With many of those adjustments now made, Amyot says it’s time to take the message to the Street.

“There isn’t a lot of information on two of the countries where we are,” he says. “We have the only mining operations in both of those countries and the market is not familiar with them. Our role is to be more aggressive in sharing that information.”

“Those countries” are the Sudan and Cte d’Ivoire, so some hesitation on the part of investors can be expected.

La Mancha’s 40%-owned Hassai gold mine sits in northeastern Sudan; La Mancha is the operator, with the Sudanese government holding a 56% stake and a private French company, the remaining 4%.

Western corporate participation in Sudan has come under increased scrutiny as atrocities continue to play out in the Darfur region.

But non-governmental organization Sudan Divestment Task Force — a project of the Genocide Intervention Network that focuses on “offending” companies in Sudan that shareholders should divest themselves of — recently issued a report commending La Mancha on its role in the country.

“La Mancha has committed to being a responsible player in Sudan’s mining sector, and has taken steps to address directly the Darfur crisis,” the report reads. The report advises shareholders to hold on to their shares and encourage 700,000 oz. gold to date. Last year, ounces attributable to La Mancha totalled roughly 19,000 oz., and the company estimates that 2008 will bring close to 25,000 oz.

In total this year, La Mancha projects it will see 87,000 attributable oz. of gold from Hassai, Ity and Frog’s Leg combined.

And as with Hassai, La Mancha believes there is considerable geological upside still untapped at Ity. Results from its 23-hole program would seem to bear that hypothesis out.

Grades from three different holes returned highlights of: 2.7 metres grading 29.62 grams per tonne gold from 1.1 metres depth, 10.7 metres grading 6.93 grams from 72.3 metres, and 5.1 metres grading 14.84 grams gold from 20.6 metres.

Those intervals all came from an extension of the Mount Ity pit towards the known Tontouo deposit and the results mean Mount Ity’s reserve envelope could grow, thereby extending the mine’s current sevenyear mine life.

Roughly $2 million is slated for exploration at Ity this year and La Mancha expects to have a revised resource estimate for the project in the third quarter of next year.

While La Mancha’s interest in Ity was brought down by 10% in May of last year — it now holds a 46% stake in the mine with the government holding the rest — Amyot says the company fought hard during negotiations to maintain its operator status, and was successful in doing so.

And while reviving projects that weren’t a priority for Areva has been a task for La Mancha, having the weight of the big miner in its corner at the negotiating table has its advantages.

Five of La Mancha’s eight directors have Areva ties, but lest anyone fear that the French heavyweight is too meddlesome in La Mancha’s affairs, Amyot sets the record straight.

“As far as experience, expertise, databases — there are tonnes of information accumulated by Areva in its more than thirty-year presence in Africa,” he says. “So that brings important insights as much on the political front as on the cultural side and this is definitely beneficial for the company. But in terms of the day-to-day operations, we are now based in Montreal with our own management team with its own objectives.”