Andean Resources (AND) Strategy First Recommendation 19/11/2006...

Andean Resources (AND)

Strategy
First Recommendation 19/11/2006
Share Price $0.345
12 mth Price Target $0.65
Suggested Stop Loss $0.20
Recommendation Spec Buy
Risk Rating High
Market Information
Sector Gold
Index Small cap
Market Cap 105m
How Many Shares do I buy?
Trade = Amount ($) you're prepared to risk
Size Market Price - $0.195

Note. Amount ($) you are prepared to risk is typically 2-3% of the TOTAL amount you have to invest

Calculate here


Recommendation Summary






Company Background
Andean Resources (AND) is a junior resource company focused on the exploration and development of gold projects in Patagonia, Argentina. The Company's major project is the 100% owned Cerro Negro epithermal gold deposit which was acquired from Oroplata Limited in June 2004.

Investment Summary
In May 2005, we recommended AND, closing our position a year later with members making a potential return of 200% over that period. During the year approximately 8,000 metres of diamond and RC drilling was completed at Vein Zone with very positive results. The first resource estimate from Independant Consultants was followed up again in September 2006 with a revised resource estimate of 840,000 ounces at the Vein Zone at a 0.5g/t Au cut off with greater than 60% of the ounces being in the Measured and Indicated categories. A scoping study and a feasibility study of the Vein Zone area is to occur next.

During the year, there was also the addition of 3 new regional exploration properties in the Santa Cruz province, including the high-grade Las Mellizas gold property which has returned some amazing gold grades such as 5m @ 189 g/t Au in drilling by previous explorers. AND also completed a share placement to raise $3.56 million in new capital. This will be used for exploration programs in Argentina. This story still looks good for AND. We recommend a ‘Spec Buy’ on AND at current levels.

wise-owl Checklist
Solid management team that has performed well and have good project development experience.
Still operating at a loss but this is of no surprise as still in its exploration stages obtaining results of 0.5g/t of Gold.
The ramp up in their exploration activities after promising results has commenced with more significant findings to come in 2007.
Institutional shareholders include Kingsgate (21.3%), Commonwealth Bank (8.3%) and Sentient (16.6%).
Stock appears to be making a bullish break from a flag pattern.
Fundamental & Quantitative Analysis
Management
Wayne Hubert - Managing Director

Wayne recently joined AND in September 2006. Before this, Wayne spent the last 14 years of his career with Meridian Gold Inc. as Vice president, Corporate Development and Investor Relations. During this time, Wayne gained considerable experience in the areas of finance, project development and construction, exploration and investor relations. Wayne will play an integral role in AND as it enters its next phases of growth and corporate development.

Barry Bolitho - Independent Non-Executive Director


Joining in August 2006, Bary has over 29 years experience in the minerals industry. During this time he has gained extensive experience with nickel, mineral sands, tin, tantalum, gold and silver. Over the last 15 years he has held a number of executive management positions in the resource sector including board positions with both producer and exploration companies. Barry has been responsible for the development and executive management of greenfields projects in Australia and offshore and has an extensive experience base over most facets of the minerals industry.

Financial Performance
In the most recent report, AND saw a loss after tax for the financial year of $2.7m compared to the previous year’s loss of $1.6m. AND is still at its exploration stages and as yet, no production has commenced. Most of its exploration costs were focused on the Cerro Negro epithermal gold project in the Southern Argentina. With further detailed scoping studies to commence, more exploration expenditure will be incurred but as it is an exploration play, this is to be expected. AND have no difficulties raising capital for more exploration if needed with their recent share placement of 13.7m shares at $0.26 not affecting the share price at that time.

Growth Story
It has been a good year for AND so far with the potential for it to be an even better one in 2007. Going into 2007, AND will be looking to accelerate the exploration programs planned with the largest Diamond and RC drill programs yet undertaken at Cerro Negro.

This Phase 3 program will expand the current Resource through further exploration along strike and up-dip of the Resource area, and assess the strike potential for additional gold bearing quartz veins at the nearby Herradura prospect where limited drilling late last season intersected ore-grade intersections over moderate widths. AND will also be assessing the Eureka Vein which has returned broad zones of gold mineralisation in drilling carried out by previous explorers.

There will also be Resource definition drilling at Vein Zone for the completion of future engineering, feasibility and financial studies. With access to two or three drill rigs, this will allow AND to complete further extension and in-fill drilling at the Vein Zone as well as exploration drilling at other highly prospective areas within the tenements.

Revenue & Profitability AND vs. Sector Average
FY2006 FY2005 FY2004 AND Sector
Average
PE Ratio (x) NA NA NA PE Ratio (x) NA 69.63
Revenue per Share ($) NA NA 0.01 Revenue per Share ($) NA 0.82
Earnings per Share ($) -0.01 -0.01 -0.02 Earnings per Share ($) -0.01 0.15
Dividend Yield (%) 0.00 0.00 0.00 Dividend Yield (%) 0.00 1.08
Profit Margin (%) NA NA -404.62 Profit Margin (%) NA 15.11
Return on Assets (%) -24.85 -26.75 -62.76 Return on Assets (%) -24.85 5.81
Return on Equity -28.75 -34.14 -100.88 Return on Equity -28.75 13.49



Technical Analysis

Trend Horizon Trend
Daily
Weekly
Monthly

Technical Overview

A large descending wedge break in 1997 marked the start of a long period of consolidation, where the stock traded virtually sideways for a five year period. During 2003 the stock broke out of another, smaller descending wedge pattern. As a result of this break the stock began to trade in a large bullish channel, sending it to a significant high of 46.5c in April this year. The stock appears to have recently broken out of a flag pattern, facing resistance at the recent high of 46.5c. The main risk would be a break below critical support at the 23c level, this would imply that the bullish channel has been broken on the downside.