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Additional	Information
Market:	TSX-V
Sector:	Gold Mining
Epic:	KEX
News:	Latest news
Web Site:	Kent Exploration
Other Articles:	29-07-201026-03-201009-03-2010

Australian Supertax has Kent Undervalued; Recovery Offers Opportunity

by Karl Loomes

The recent uncertainties surrounding the proposed Australian ‘supertax’ have impacted many mining and exploration firms, both large and small, with assets based in the country that may be subject to the tax on resource profits. Kent Exploration (TSX-V: KEX) is no exception, and despite the fact only one of their properties is based in Australia, valuations and share price alike, have slid in recent weeks. Just three weeks before Kent had planned to announce some impressive drilling results at their Gnaweeda Gold Project in Australia, the government announced the proposed supertax and soured the investment market for mining and resource stocks.

Kent had planned to spin off the project to its shareholders via its 100% owned subsidiary, Archean Star Resources. Kent CEO Graeme O'Neill said of the proposed move “It essentially gave [shareholders] a dividend of one of the company's significant properties and reduced potential dilution in Kent for the Gnaweeda exploration”. O’Neil suggests in effect, the market is treating Kent as though it has only one asset, that in Australia, and effectively is treating the proposed supertax as though it is already in place. However at this stage, and prior to Australian elections in October, nothing is truly set in stone, with the move seen by many as a pre election ploy (one that already backfired for Kevin Rudd, losing his job as Prime Minister due to his failure to consult the industry before proposing the tax).

When the uncertainty surrounding the tax settles, and investors begin to regain some appetite for resource companies with Australian assets, Kent is in a prime position to benefit. One could already argue the company is undervalued on the basis of the tax, with investors seemingly ignoring the company’s diverse portfolio. Add to this Kent’s intention to go ahead, when viable, with the Gnaweeda spin off, and the increasing potential that project has on its own merit, and Kent may indeed offer a good investment opportunity.

To give you some quick background, Kent Exploration is a Canadian based mineral exploration company, with market capitalisation of C$6.9 million, focusing on gold, silver, base metals and coal mineralization in the US, Canada, Australia and New Zealand. The company has seven properties in all, three of which it sees as “significant gold properties”, which are the company’s key assets at this stage. These include the above mentioned Gnaweeda Gold Project in Western Australia, the Alexander River Gold Project in the Reefton Gold District in New Zealand, and the Flagstaff Barite and Gold Project in Washington State, America.

Kent Exploration, through its wholly owned subsidiaries, Archean Star Resources Inc and Archean Star Resources Australia Pty, Ltd, has entered into an Option Agreement with Teck Australia whereby Kent can earn 100% of Teck's now approximately 76% interest in Chalice Gold's Gnaweeda Gold Project. To earn its 100% interest in Teck's interest in Gnaweeda, Kent is committing to spending A$3 million over 4 years, with A$650,000 already having been expended on geophysical programs and a first phase diamond drill program.

It was this drill program which showed very strong intersection and gave some buoyant potential at the site, which went all but ignored by a risk adverse market following the proposed supertax. This itself was an undervaluation by the market of one of Kent’s key assets. The drill program consisted of 8 diamond drill holes, totalling 1,600 meters in length, with approximately 1,100 meters conducted on the Turnberry prospect and 500 meters on the Bunarra prospect. Some of the most significant results showed intercepts of 18 meters grading 11.1 grams per tonne (g/t) of gold, including 4 meters grading 37.7g/t of gold and one metre grading 99.1g/t of gold. Although still in early stages, these results are encouraging for the property, and one could argue leave the market’s perceived value of the project, somewhat lacking.

As eluded to, Kent is by no means a ‘one trick pony’, and no matter what the eventual outcome of the Australian supertax, the company hold several other significant properties. Graeme O'Neill suggested the market are “treating Kent as though the Gnaweeda property in Australia is the only significant property the Company has, and it is now under severe restrictions due to the perception, not the reality, that this tax proposal is in place. Now we know that in October there's going to be an election in Australia. There is significant resistance to this tax and while no one knows whether this proposal will go through, the odds are highly likely it won't. In the meantime, because we have been significantly reduced in price because of the uncertainty, in my estimation; we present a bargain".

If we look at Kent’s Alexander River Project in New Zealand for example, located in the highly prolific Reefton Goldfield district. Mineralization in the Reefton Goldfield district typically consists of high grade free milling gold in veins, locally surrounded by a lower grade halo of refractory ore. Historic reports indicate that approximately 10 million ounces of placer gold and 2 million ounces of lode gold have been recovered from the Reefton mining camp.

The project is located in fairly close proximity to some significant historically producing mines, including the Blackwater Mine, which produced approximately 750,000 ounces at a reported grade of 11g/t gold prior to closing after a shaft collapse in 1952, the Big River Mine, which produced approximately 105,000 ounces at a reported grade of 17g/t gold, and the Globe Progress Mine, which reportedly produced approximately 640,000 ounces from underground workings and is currently a newly developed and operating mine by Oceana. One could argue the potential for Kent’s Alexander project alone, which naturally will be unaffected by an Australian tax, warrants a closer look at the company’s valuation.

The Alexander Gold Project covers 2,669 hectares and lies approximately 20 kilometres south of the above mentioned Oceana Gold's Globe Progress mine (this mine is currently producing between 50,000 and 75,000 ounces of gold per year). In December 2009, Kent completed an initial geological assessment of the project, which consisted of over 200 assays received from trench samples. Some of the more significant assays included 8 meters grading 11g/t of gold, 3.2 meters grading 24.6g/t of gold and 1.9 meters grading 40.4g/t of gold. This led Kent to undertake an IP survey, which was completed in April this year, and together with the trenching results, will assist in determining locations for a drill program on the property expected to conclude late 2010.

CEO O’Neil believes this project is something to be very excited about, saying “the old historic soil samples seem to show the potential for additional gold bearing zones parallel to the main zone. We could have 2 or 3 parallel structures. Our geologists are waiting for the results of the IP survey, due by early July, and all the other data we've built up to assist in locating our diamond drill holes. We do have a diamond drill program already planned there. This project is, in our estimation, going to be a winner. The grades from the surface sampling are excellent and substantially compare to the numbers from a prior 1985 – 1995 program when a potential resources of 4 million tonnes at 5+ g/t gold was estimated. Of course we are going to have to prove that up, but the Globe Progress and Blackwater mines in the immediate vicinity have each had production in excess of 700,000 ounces, so there is good reason to believe that Alexander will be no different".

Here we have looked at just two of Kent’s projects, only one of which has the potential to be hit by a tax that may not even happen. The company has a diverse and geographically dispersed portfolio of assets, and considering the buoyant results from Gnaweeda and Alexander, one can’t help but come away with the impression that the market has oversold Kent through fear and uncertainty. If this is the case, and these concerns begin to subside after the Australian elections in October, then some investor appetite for mining and exploration firms in the country may return.

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