Big jump in gold resource base

Hot on the heels of a recent increase in its equity stake with respect to its Moto gold project in the Democratic Republic of Congo, Moto Gold has announced a 47% jump in the Indicated resource base of the project. This is just the tip of the iceberg in our view and is merely a function of the area covered by drilling so far. We believe the eventual resource base will be much larger still and hence why we are keen to maintain a high-risk stock like Moto Gold in our portfolio.

Fat Prophets initially recommended buying Moto Goldmines at 305p in January 2007 (Fat Euro Mining 5). Our last review of this stock was in February (Fat Euro Mining 56).

From a charting perspective, the outlook for Moto Goldmines continues to improve. As evident on the daily chart, the share price has lifted above a five-month consolidation pattern, ranging between 186p and 128p. Last week prices reached a seven-month high of 211p.

Although we cannot rule out additional consolidation in the weeks ahead, an upward trend is beginning to emerge. As such, we believe a continuation to higher levels is likely in the weeks ahead, with the July high of 250p providing an initial target. We expect prices beyond here are achievable in time.

Moto Gold has announced a substantial 47% boost in the Indicated Mineral Resources at its Moto gold project, located in the Democratic Republic of Congo (DRC). Importantly, the increase in the Indicated resource base demonstrates the robustness of previous estimates and further adds to the project's fundamentals, long life and enormous upside.

The revised Mineral Resource estimate was independently undertaken by Cube Consulting Pty Ltd using additional drilling information acquired during the period between February and December 2007. This data was not incorporated into the Mineral Resource estimates of the project's recently completed Feasibility Study (refer to our most recent report).

Drilling activities during this period were largely in-fill and were focused on the definition of high grade lodes within the Karagba-Chauffeur-Durba (KCD) mineralization system, which have been identified as having significant potential for extraction by underground methods.

The global mineral resources for the project, using a 1.0g/t Au cut-off grade, are now estimated at 95.3 million tonnes @ 3.4g/t Au for 10.3 million ounces in the Indicated Resource category.

The new estimate also demonstrates growth with respect to the modeled portion of the Mineral Resource in both the upper and lower areas of the KCD mineralization system.

The additional drilling information has also led to improved interpretation and understanding of two mineralized lodes of considerable spatial extent that lie beneath the planned KCD open-pit as detailed in the project Feasibility Study.

Initial indications are that these lodes are amenable to extraction by underground mining methods and as such, Moto has commissioned further geological modeling of these two lodes using interpretation and estimation methodologies considered to be more appropriate to underground mining.

Given the strength of these revised estimates, Moto, in conjunction with OKIMO, intends to accelerate the acquisition of information to further develop understanding of the controls and extent of the KCD mineralization system with a view to assessing the viability of incorporating a high grade, underground mine to the existing scope of the project.

Following the completion of the recent transaction that saw Moto acquire the interest in the project of its joint venture partner, Orgaman, Moto's attributable Indicated Mineral Resource base has increased by 71% from 4.2 million ounces to 7.2 million ounces.

As we have previously mentioned, Moto is also waiting for the formal publication of the report of a commission set up to review 60 mining agreements entered into by the para-statal companies of the DRC Government.

As far as Moto is aware, the Commission's report may include recommendations, which will apply to most mining companies, that certain financial terms of the partnerships be renegotiated.

In the meantime, Moto is seeking to finalize discussions in relation to a draft consolidated lease pursuant to the terms of the protocol agreed between OKIMO (its project partner) and Borgakim Mining sprl, (a Moto subsidiary), in November 2006.

As a reminder to Members, the Moto gold project is located in the Moto goldfields in the northeast portion of the DRC. The project covers an area of approximately 5,000 sq km.

The Moto greenstone belt has a history of gold production. Three of the deposits in the area, Gorumbwa, Agbarabo and Durba, which were exploited primarily during the 1950s and 1960s by the Belgians, have produced more than 60% of the +3 million ounces of recorded production from the Moto area. The Moto goldfields still remain relatively unexplored by today's standards.

Whilst the risks remain high, we maintain that the potential rewards counterbalance the potential pitfalls. Ore bodies like Moto are few and far between; hence we can justify a high-risk stock like Moto Gold in a diversified resource portfolio.

Accordingly, Moto Gold Mines will remain firmly held within the Fat Prophets European Mining and Resources portfolio. However, for Members with no current exposure we recommend the stock as a Buy around 211p.