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Egan Street hits the ground running at Rothsay gold project

Newly minted Egan Street Resources Ltd. is not wasting any time in completing a scoping study on its Rothsay gold project in Western Australia.

The Australian explorer, which hit the boards of the ASX in mid-September, managed to raise its targeted IPO amount of A$6.0 million in just one day.

Egan Street traded at a 60% premium on its first day as a listed company and is currently trading 35% higher than its IPO price of 20 cents.

SNL Metals & Mining spoke with nonexecutive director Hedley Widdup on the sidelines of the Precious Metals Investment Symposium in Sydney, Australia, about the recent IPO and progress at the Rothsay project.

The following is an edited version of that interview.

SNL:

Egan Street obviously had a strong response to its IPO. Tell me about that.

HW:

The issue was structured as a rights issue with a placement on the tail of it and the placement was really just to get spread. When it came to actually raising the money and we opened it, we sent out invitation letters and we were inundated.

The underwriting was A$5.4 million and we had A$16.5 million of demand. It was very closely managed and yet we still had three times more than we needed just for the underwriting and then the placement was largely done as a result of that.

I’ve seen people come through with bookbuilds and they take forever and I really sympathize with them because I know how tough it is. So with this one to have it done so quickly and almost instantaneously, I thought it was amazing.

Why do you think the investor response was so strong for Egan Street’s IPO?

The first one is it’s a high-grade project and high-grade projects are quite easy to get excited about. The second one is it’s a good management team, they’re fresh and so it’s a story with no skeletons attached to it. The third one, the market was just all over gold and couldn’t get enough of it.

But fourth, we’d decided that the primary risk for this company was getting that funding, so it had to be done at a price which would ensure that the offer would be cleared and so when we opened it people saw it as a bargain.

People knew that it would probably trade up on day one. It’s a story which I think can play out very quickly now. We’ve got a scoping study to complete and by the end of this year I think we can tell people what we think the project could be economically. So after listing, to essentially have a quarter to do a scoping study is a pretty quick evolution for a typical IPO.

Were you expecting such a positive response on the first day of trade?

It was a very positive first day performance. We were very happy that it had worked out, but we were most relieved that it had come together in a package which was really easy for the market to digest, it was being digested and it was being appreciated.

What work is Egan Street doing at the Rothsay gold project?

The prospectus flagged about A$1.5 million worth of drilling, at least initially. We’ve raised A$6.0 million so there’s plenty of money. We put together a new resource in the process of listing because we had an old resource which we knew was deficient and needed some corrections made.

We thought we were going to need to drill holes to infill gaps and it would need some patching up. When we got it we thought ‘this hangs together really well.’ I’ve sent the guys back to the drawing board more or less. Yes we will be drilling. I don’t know how much and I don’t know how that will affect the scoping study. I think we will have a rig there within a couple of weeks.

The field is absolutely, I suppose you would say, pregnant and if it was 50 kilometers from Kalgoorlie, this would have been absolutely riddled with holes by now. The fact is it’s out near Perenjori in the wheatbelt, which is not really a classic gold mining jurisdiction.

When do you expect to deliver an updated resource for the project?

We have a resource that is 226,000 ounces at 11.5 g/t. That’s open in every direction and occupies about a kilometer of strike.

You’ll probably see an updated resource after we’ve done some drilling but as we progress through a feasibility study I imagine. The scoping study probably won’t have time for an updated resource and we won’t need a reserve I don’t think for that.

Are there any possible acquisitions or joint ventures on the cards for Egan Street?

There is nothing that is directly within our sights. What we have though is a management team and a philosophy which is it’s a small project and it needs to be done right. Now there’s been a perception that gold projects need to be a certain threshold size and this is a small one.

So there is an immediate challenge for investors there to say ‘can you do it small scale?’ We are supremely confident that we can and there is a processing solution that will be used there, which is really just a small modular plant that we’re fairly confident we’re going to go for.

If that’s the case, it unlocks a vast amount of small deposits which have never really been able to be touched unless it was a satellite. So the concept would be that we could extend that over a number of different deposits, but we need to convince the world that we’re good at doing small deposits first.

Beyond that, the company wants to be successful and generate cash and where that cash goes from there, whether it’s an acquisition, building something new or straight back into investors’ pockets, we need to get to that stage before we wonder about what to do.