RCKS Talk

15-Apr-2019

De Grey Mining Ltd

Big Hole Points to Big Resource Growth

Impact: Positive

De Grey’s drilling at Toweranna has delivered strong results and based on this success, we have increased our estimates. We have increased our fair value estimate to A$0.35/sh (was A$0.30) and believe that the company is poised to re-rate as it continues to deliver exploration success. 

Highlights:
  • Results suggest exploration target could be conservative. De Grey has exceeded our expectations with results highlighted by 136m at 2.0 g/t AU (9TRC138) outside the current resource of 143.9koz at 2.2 g/t Au. Overall, the 12 holes returned a weighted average grade of ~3.1 g/t Au over an average width of ~4.6m suggesting that resource is poised to grow at higher grades. The company’s current exploration target for Toweranna is 680-800koz at 2.1-2.3 g/t Au (excludes existing resource) down to 800m. If the grades and widths witnessed in this hole persist, this target is likely to be conservative.
  • A growing Toweranna, grows our estimates. We are increasing our modelled resource estimate for Toweranna by 100% to 424koz (6M tonnes at 2.2 g/t, was 212koz, 3M tonnes at 2.2 g/t), our NAVPS estimate to $0.50/sh (was A$0.44) and fair value. We highlight that we have only expanded our resource, but grades could also increase, with a 25% increase in grade potentially adding a further 16% to our NAVPS estimate (Figure 1). The addition of further high-grade tonnes to our model has improved our estimates for mine-life, grade, costs, etc, (Figure 2).
  • 2Moz in sight, more results to come. De Grey has set a corporate goal to finish 2019 with a global resource of 2Moz, which given the recent exploration success at Toweranna, Withnell, and Malina appears to be easily achievable. We expect this potential to be demonstrated with pending drill results from all 3 deposits.
 
Valuation:
Market is focused on pending payment, missing out on exploration success. We have increased our fair value to A$0.35/sh (A$0.30) based on 0.70x our NAVPS8% estimate of A$0.50 (was A$0.44). The company trades at a substantial discount to peers (0.19x vs. peers 0.69x) as the market appears focused on the A$9.7M payment that is due to the property vendors in July 2019. We believe the company is able to finance this and expect a substantial re-rating when this happens as the market should then price in the recent exploration success. Upcoming catalysts: 1) Ongoing exploration results, 2) Project development updates and 3) Final project payment (July 2019).
21-Mar-2019

De Grey Mining

More High-Grade Hits from Withnell

Impact: Mildly Positive

Results from De Grey’s larger Withnell deposit suggest high grade lodes are coming down the pipeline as the company pursues an aggressive exploration target across its entire project. These and other recent drill results support our fair value estimate for De Grey of A$0.30/sh and we believe the stock should re-rate as the company demonstrates the scale potential and exploration upside of the Pilbara Gold project.
Highlights:

  • Better than average grades should expand open pit. Withnell is the largest deposit in the Pilbara Gold Project with 377,300 oz at 1.8 g/t Au. Highlights from shallow drilling include 5m at 7.8 g/t Au (INRC1364B) from 43m in Lode 1. While our estimates assume some open-pit resource expansion, these results suggest more at better grades.
  • Deeper intercepts support our expectations of an underground mine. The highlight deeper intersections from Lode 1 which returned 8m at 20.11 g/t Au (NRC112) from 168m support our view that sufficient grades and widths exist for underground mining. We currently model 3.5M tonnes at 5.0 g/t, in-line with the existing exploration target of 2.6-3.5 Mt at 2.6 – 3.5 g/t Au (330,000 – 720,000 oz). With the underground component representing 43% of our pre-tax NAV, continued deeper drilling success is important for our valuation.
  • The rigs keep turning. Drilling continues to at both Withnell and Toweranna, along with results pending from Malina and we expect to see steady news flow over the next few months. The company is targeting a 2Moz resource for 2019 and we view this as very achievable based on the recent success at Toweranna and Withnell alone. We expect the stock to march higher as De Grey demonstrates the exploration upside of this project.

 
Valuation:
 Recent share price performance not reflective of fundamental value. We estimate De Grey’s hard rock assets are worth at least A$0.30/sh based on 0.70x our NAVPS8% estimate of A$0.44 (unchanged) and believe the recent share price performance reflects the near-term payment A$9.7M payment needed to acquire the western portion of the project. In our view, the company is very likely to be able to fund this obligation, which we expect to drive a significant re-rating. Upcoming catalysts: 1) Ongoing exploration results, 2) Project development updates and 3) Final project payment

 

13-Mar-2019

De Grey Mining Ltd

Toweranna Results Push Pilbara Gold Towards 2Moz

Impact: Mildly Positive

De Grey continues to pursue aggressive resource expansion with recent drilling suggesting material resource growth is likely at Toweranna. We believe De Grey is worth A$0.30/sh and these drill results are another step in demonstrating the exploration potential of the Pilbara Gold Project. 

Highlights: 
    • Initial drilling returns high grades suggesting resource growth. De Grey conducted drilling in the Eastern and Western zones of Toweranna both to expand resources, and for metallurgical testing. Positive results were highlighted by 5.8m at 5.76 g/t Au (TD002) and 10.4m at 4.93 g/t Au (TD007) in the East and West respectively demonstrating the potential for higher grades beyond the current 2.2g/t Au 143,900 oz resource.
    • Toweranna exploration target appears very achievable. The Toweranna resource is largely constrained by a shallow depth of <120m. The company is planning a +5000m RC drilling program to be followed by diamond drilling to depths of up to 800m. The coming program will target both the Eastern zone, where mineralized lodes appear to dip to the east, and deeper zones beneath the deposit. Based on its current knowledge, De Grey has outlined a total exploration target of 680,000-800,000oz at a new depth of 400m. Our estimates account for the upper portion of Toweranna exploration target only, and any additional expansion could provide upside to our current estimates. 
    • Ore sorting could prove transformative for Toweranna. The company
      is conducting initial test work with Tomra Sorting Pty Ltd to evaluate the potential of implementing ore sorting at Toweranna. While still early days, the technology could expand the mineable resource and introduce a higher-grade concentrate to the mill (vs. whole ore). In our view this could positively impact project economics, the magnitude of which will depend on pending test results. 
    Valuation:
    De Grey continues to make itself more attractive to potential acquirers. We estimate De Grey’s hard rock assets are worth at least A$0.30/sh based on 0.70x our NAVPS8% estimate of A$0.44 and we anticipate a progressive re-rating as the company de-risks its +100koz/year production potential and demonstrates the project’s exploration upside. Upcoming catalysts: 1) Ongoing exploration results and 2) Project development updates.
08-Mar-2019

De Grey Mining Ltd

More Drilling Success Points to Resource Expansion

Impact: Mildly Positive

Drill results out of De Grey’s Wingina and Amanda deposits extend both targets beyond their current resource shells and highlight the largely untested discovery potential of the >60km thrust zone in which both deposits occur. We recently published our initial estimates and we expect the company to gradually re-rate as it turns out the scale and discovery potential see at its Pilbara Gold Project. 

Highlights: 
    • Wingina expected to grow. Wingina’s current deposit shell extends over 1km of strike to roughly 200m of depth. These drill results demonstrate a potential step out 150m east with highlight intercepts returning 6.35m at 3.37 g/t Au (WDH015). Furthermore, the company successfully tested new depths of up to ~300m where it intersected significant mineralization including 2.84m at 1.22 g/t Au 323.8m down (WDH016).
    • Amanda hints at potential of wider mineralized corridor. At Amanda,
      RC drilling from 25 holes shows the strike and depth potential of the largely underexplored deposit (50,800oz at 1.3 g/t Au) which remains unconstrained along strike and at depth. Banner intercepts returned 14m at 1.06 g/t Au (AMRC042).  
    • Growing resources would positively impact our estimates. Based
      on these, as well as recent results from Towerana, Malina and Withnell Underground, De Grey is well positioned to deliver a 2M oz resource by year-end. We note that a 10% increase in mineable open-pit tonnes at current grades (1.81 g/t) would increase our NAVPS estimate by 4%. We also note that ounces added at Wingina and Amanda would have larger impact on our estimates, as these deposits are expected to have higher recoveries and lower processing costs (free milling at depth).
    Valuation:

    We believe that De Grey could position itself as an attractive target to mid tier producers as it continues to deliver exploration success at the Pilbara Gold Project. Our preliminary estimate for De Grey’s hard rock assets are worth at least A$0.30/sh
    based on 0.70x our NAVPS8% estimate of A$0.44. We expect the company to progressively re-rate as it de-risks the +100koz/year production scenario and continues with its ongoing exploration success. Upcoming catalysts: 1) Ongoing exploration results and 2) Project development updates.
06-Mar-2019

De Grey Mining Ltd

Setting the Table for a Takeout

We believe De Grey is worth A$0.30/share based on our initial NAVPS estimate of A$0.44/share and a multiple of 0.70x. In our view, De Grey is one of the few development companies with a path to produce plus 100koz/year, have exceptional exploration upside in +200km of shear zones and trading at a steep discount to its peer group. We believe that the Pilbara Gold Project is of a scale and has the exploration upside that we believe makes De Grey an attractive target for mid-tier producers.

Investment Thesis: 

  • Already +100k/year potential. We believe that with a planned throughput of 2Mtpa (~5,500tpd) De Grey would produce 143koz per year at cash costs of US$621/oz for initial capex of US$98M. Our estimates assume production starts in CY2022E and includes production from multiple deposits, with 59% from open-pits and 41% from underground.
  • Room to grow, a lot. The company’s 1.4Moz resource is spread over 5 main deposits (12 total). Drilling has focused on growing these deposits near surface; however, most remain open along strike and all are open at depth. De Grey believes the resource could grow to over 3Moz and with +200km of favourable structure, of which less than 10% has been properly tested with RC and diamond drilling, we believe this is very possible.
  • The right ingredients to be a target. With continued exploration success and project de-risking, De Grey is making itself more attractive. We believe the project is now at a large enough scale to matter to most mid-tier producers and has major exploration upside that potential acquirers look for. KL Gold already owns 9.2% and we believe that other cashed up Aussie mid-tier producers are also potential acquirers (Figure 5).
Valuation:

 We expect De Grey to progressively re-rate to our fair value estimate of A$0.30/sh. Our fair value is based on 0.70x our NAVPS8% estimate of A$0.44. We expect the company to progressively re-rate as it de-risks the +100koz/year production scenario, with engineering and additional studies. As well, we expect that continued exploration success, demonstrating the resource potential of the project to drive the share price higher. In our view, as the company surfaces its potential (both development and exploration), it should become an attractive takeout target for a mid-tier producer. Upcoming catalysts: 1) Ongoing development updates, 2) Ongoing exploration results, 3) Updated resource (Q4/19) and 4) New economic study (Q1/20).  
 

 

01-Mar-2019

De Grey Mining Ltd.

Mallina Drilling Expands Resource Potential

Impact: Mildly Positive

De Grey has released step out RC and diamond drill results from its Central Mallina Target which point to potential growth beyond the current ~160koz resource. We believe that De Grey’s Pilbara Gold project is of sufficient scale and exploration potential, to position company as a whole as an attractive target for mid-tier producers.

Highlights:
  • Diamond drilling intersects wide alteration zone at depth. Diamond drilling beneath the current Mallina Central zone orebody highlight a potential 50-70m wide alteration zone of sulphide and limited quartz vein mineralization (MLRC259D). While assays are pending for this hole, it lies directly beneath previously drilled MLRC214D which returned 56m at 3.04 g/t Au and appears to be similar in geologic nature. Mallina’s current deposit has only seen shallow drilling (<100m) which was the basis for the initial resource estimate of 160,700 oz at 1.3 g/t Au.
  • Step out drilling extends resource potential along strike. Results confirm the extension of Mallina Central to the west where RC drill hole MLRC255 intersected 5m at 2.03 g/t Au at 50m to the west of the current deposit (Figure 2). Additionally, the company is completing a 5km x 1km Sub-Audio Magnetic (SAM) geophysical survey which is expected be used in identifying further potential targets along strike from the deposit and provide information on the mineralization controls in the wider Mallina area.
  • Continuous news flow across entire project. The company is pending results on several diamond drill holes which we expect will provide further insight on the potential of the deeper Mallina Central zone. Additionally, the company is pursuing resource expansion throughout the entirety of its Pilbara Gold project, we expect updates are coming on capital costs, operating costs and mine plans for the proposed project as well as drill results across a number of the company’s deposits.
Valuation:
We expect De Grey to progressively re-rate as exploration and project development continues. Our preliminary estimate for De Grey’s hard rock assets are worth at least A$0.30/sh. These estimates do not account for the optionality the company has with its conglomerate targets. We believe that as the company demonstrates the exploration upside and scale potential of PGP, it is likely to become a takeout target for larger peers. Upcoming catalysts: 1) Ongoing exploration results and 2) Project development updates.

28-Feb-2019

De Grey Mining Ltd

Updates Demonstrate Project Wide Upside

Impact:Mildly Positive

De Grey has provided positive updates from both its conglomerate target Loudens Patch target and Farno JV highlighting project wide explorational potential. As De Grey continues to outline an increasingly economic operation for its Pilbara project supported by significant exploration upside, we expect mid-tier producers to begin to show an interest.

Highlights: 
    • Conglomerate potential looking increasingly promising. Bulk sample results to date from De Grey’s Loudens Patch West have returned an overall average grade of 3.04g/t Au. These results continue to demonstrate the possibility that Loudens Patch could provide supplemental higher-grade ore to the company's proposed hard rock development plans without necessarily defining a resource. These results continue to that further testing of the conglomerate gold target is warranted.
    • Farno JV shows potential from initial drill results. Reconnaissance drilling completed 20km to the South of the company’s Withnell deposit have delivered new anomalous gold prospects at Quartz Hill, Clarke and Gillies. A total of 2,310m of drilling was completed at the three targets returning grades ranging from 0.23-1.19g/t Au over various quartz vein and anomalous gold zones. De Grey expects to earn its initial 30% interest (can earn up to 75%) in the Joint Venture with Novo Resources through the completion of planned 2019 work programs.
    • Considerable news-flow coming from multiple prospects. We don’t expect the company will ease-up on its current momentum in 2019. As it pursues resource expansion throughout the entirety of its Pilbara Gold project, we expect updates are coming on capital costs, operating costs and mine plans for the proposed project bolstered by further drill results.
    Valuation:
    Market does not value Pilbara Project’s current resources or expansion potential. Our preliminary estimate for De Grey’s hard rock assets are worth at least A$0.30/sh. These estimates do not account for the optionality the company has with its conglomerate targets. We believe that as the company demonstrates the exploration upside and scale potential of PGP, it is likely to become a takeout target for larger peers. Upcoming catalysts: 1) Ongoing exploration results and 2) Project development updates.

21-Feb-2019

De Grey Mining Ltd.

Bigger Throughput Pushes Project Over 100k oz pa

Impact: Positive

De Grey announced an increase in the scale of the its Pilbara Gold Project from 1Mtpa to 2Mtpa plant throughput based on 2018 exploration success and improved metallurgy. As well, the company announced that it expects the resource to grow to 2Moz by year-end. Both these updates support our view that De Grey is continuing to improve the scale and economics of its Pilbara project, which we expect is likely to start attracting the interest of mid-tier gold miners in Australia.
 

Highlights:
  • +100koz pa potential. Following a recent resource update that saw an increase in resources from 1.2 to 1.4Moz Au plus the recovery improvements announced last week, the company has announced that plans to advance the project around a 2Mtpa plant, which based on our estimates should translate to +100koz pa production. In our view, this is an important threshold, is the project is now of a size that matters to mid-tier producers, making De Grey a more attractive takeout target.
  • Resource expected to be ~2Moz by year end. De Grey reiterated the company’s corporate goals of building a 3Moz resource in the Pilbara with the first step of defining 2Moz by year-end (an additional 600koz). With two drill rigs already drilling both open pit and underground targets at Withnell, to be followed by Toweranna, we expect these 2019 goals to be easily achievable at these two deposits alone. We highlight that step-out drilling is also planned for Malina and Mt, Berghaus.
  • More news coming. Having recently announced higher expected recoveries and now doubling the expected throughput, we see 2019 as a transformative year for the company as it continues to highlight the projects potential. Along with ongoing drill results, we expect further updates on capital costs, operating costs and an expected mine plan to further support this theory.
Valuation:
Valuation does not reflect Pilbara Gold projects potential. Our preliminary estimate for De Grey’s hard rock assets are worth at least A$0.30/sh. These estimates do not account for the optionality the company has with its conglomerate targets. We believe that as the company demonstrates the exploration upside and scale potential of PGP, it is likely to become a takeout target for larger peers. Upcoming catalysts: 1) Ongoing exploration results and 2) Project development updates.

12-Feb-2019

De Grey Mining Ltd

Higher Recoveries Increase Preliminary Estimates

Impact: Mildly Positive

Recent metallurgical test results from De Grey outlined a straightforward flowsheet for the Pilbara Gold Project with improved recoveries resulting in at least a 10% increase in our preliminary estimated valuation. We expect further resource growth and continued improvement of potential mine economics to make De Grey a target for mid-tier producers.

Highlights:
    • Improved process for better recoveries. Results from the testing yielded average recoveries of 94%, 92% and 90% for oxide, free milling and pyrite dominated sulphide material respectively across samples collected from select deposits within the Pilbara Gold Project (PGP). This is an improvement over the average 86% recoveries outlined in the scoping study and we estimate the incremental capex to increase recoveries is likely to be ~US$10M. The company is continuing metallurgical testing to further optimize the flowsheet for its multiple deposits.
    • Improved recoveries increase our estimated valuation by ~10%. The increase in recovery supports our view that the project should be economic. Only assuming a recovery increase to 90% (62% of current resource is fresh/sulphide material) improves our preliminary estimates by ~10%. If we were to assume 92% recovery, which gives some credit for the better recoveries of the oxide and fresh material our preliminary estimates increase by ~15%. 
    • Coming news should emphasize large scale potential. The combination of the recent resource update, and drilling success, particularly at Withnell Deep suggests to us that a larger scale project than the (1M tpa or ~60k oz/year) is likely for PGP. Additionally, the company is continuing to drill at the Withnell deposit (40% of PGP resources), a program that has been underway since January with the specific goal of defining an underground resource at this deposit.  
    Valuation:
    Valuation does not reflect Pilbara Gold Projects potential. Our preliminary estimate for De Grey’s hard rock assets is A$0.30-0.45/share. These estimates do not account for the recovery improvement, the exploration upside on the hard rock targets or the optionality the company has with its conglomerate targets. We believe that as the company demonstrates the exploration upside and scale potential of PGP, it is likely to become a takeout target for larger peers. Upcoming catalysts: 1) Ongoing exploration results.
12-Nov-2018

De Grey Mining Ltd.

Conglomerate Results Additive to Hard Rock Story

Impact: Mildly Positive

Conglomerate gold potential at De Grey’s Loudens West target provides a potential sweetener in both grade and ounces to the company’s hard rock assets. The company has announced the results of three small tonnage (250kg) bulk samples at Loudens West, which supports our view for the company’s conglomerate gold optionality in the Pilbara of Western Australia, which we do not currently factor into our estimates. 

Highlights:
    • Grades in the high range of comparable Novo results and support overarching geological thesis. Trenching is expected to uncover up to 60m of exposure in the current trench. Samples from Loudens West over 6m of strike returned grades of 0.82g/t, 3.92g/t and 7.92g/t (average of 4.22g/t), which compares favourably to the weighted average grade of 2.4g/t Au for Novo’s conglomerate sampling (both small and large bulk samples).
    • Small bulk sample testing may accelerate assessment of conglomerate target potential. Conglomerate bulk samples are able to be quickly processed at the company’s recently commissioned crushing and gravity sampling circuit, which may be valuable in providing quick turnover between discovery and assessment of the target host. We expect the company is likely to require larger sample tonnages to establish accurate grade measurements.  
    • Results are additive to the hard rock story. While assessing the conglomerate units at Loudens in addition to both the Jarret Well and Steel Well areas, the company is simultaneously exploring its hard rock assets where promising drill results have found underground extensions of the mineralization. It appears that the conglomerate assets may provide a nice grade sweetener to the hard rock assets, where the average resource grade currently stands at 1.6g/t Au . 
    Valuation:
    Share price action driven by expiring warrants and not fundamental value of both hard rock and conglomerate assets. Our preliminary estimate for De Grey’s hard rock assets is A$0.30-0.45/share, which we plan to refine, following our site visit this week. Near-term head winds for the share price may include 60M in-the-money options (at A$0.10, expiring November 30) and the remaining A$10.4M cash payment for the Indee project. Upcoming catalysts: 1) Additional exploration results and 2) PFS in Q4/18.

05-Nov-2018

De Grey Mining Ltd.

Underground Expected to Add Scale

Impact: Mildly Positive

De Grey’s most recent drill results indicate increased underground potential at Withnell and should add scale to the development plan. Drilling beneath the Withnell pit continues to deliver encouraging underground grades and widths and De Grey has now defined an underground exploration target of 330-720k oz. This success supports our view, that the resource is likely to grow materially and that De Grey may be able to develop a project of +100k oz per year at its Pilbara Gold Project.

Highlights:
    • Underground success points to a sufficient scale to add a high-grade sweetener. The company is targeting 2.6-3.5Mt @ 4.0-6.5 g/t Au (330-720koz). The last two rounds of underground drill results have returned a weighted average grade of ~5.1 g/t Au over an average width of ~2.3m, which we view as a potentially economic underground operation when added to the planned open-pit mines. We note that a resource around the midpoint of the range provided would push the project over 2Moz Au. 
    • Production would likely increase if an underground component were added. We highlight that even if a small percentage of these higher tonnes (current mineable resource grade is 2.1 g/t Au) were added, our current estimate for 56k oz/year at total cash costs of US$767/oz would be conservative. We note that the underground target is sulfide (majority of the existing resource is oxide), so additional metallurgical work would be required to determine how this resource fits in. 
    • Follow-up drilling being planned. The company is in the process of planning a follow-up program to convert this exploration target into a resource. We note that the upcoming PFS for the Pilbara Gold project is not expected to include this underground resource.
Valuation:
Current share price does not reflect hard rock value. Our preliminary estimate for De Grey’s hard rock assets is A$0.30-0.45/share, which we plan to refine, following our upcoming site visit. While this reflects a potential doubling of the current A$0.14 share price, near-term head winds for the share price may include 60M in-the-money options (at A$0.10, expiring November 30) and the remaining A$10.4M cash payment for the Indee project. Upcoming catalysts: 1) Additional exploration results and 2) PFS in Q4/18.

15-Oct-2018

De Grey Mining Ltd.

Hard Rock Asset Continues to Grow

Impact: Mildly Positive

Results point to continued resource growth for De Grey’s hard rock assets. The company’s exploration results from Toweranna and Mallina are likely to add to the company’s growing inventory of mineable ounces. These results follow a recent resource update where the company more than doubled mineable ounces. This news supports our theory that the project has significant room to grow (Company aims to build a 3Moz Au resource - Figure 1).
Highlights:

  • Near surface drilling continues to impress. Following a 254% increase in total resources at Toweranna to 144koz Au (2Mt @ 2.2g/t Au), drilling is continuing to highlight its near-surface expansion potential with 17.3m grading 3.91g/t Au from 50m (TRC052D). Now that the company has defined a high-grade near-surface deposit, focus is shifting to targeting depth extensions. Deeper drilling success opens the door to a potential higher-grade underground resource, which the company intends to highlight in a Scoping Study following the Open Pit PFS.
  •  3km of shallow gold zones largely untested at Mallina. The company is testing 3km of extensive shallow gold zones at Mallina. Results were highlighted intercept of 56m grading 3.04g/t Au (MLRC214D). Following a 9% increase in total resources to 161koz Au (3.8Mt @ 1.3g/t Au) in the last update, Mallina remains an important near-surface target (<100m depth) for step-out drilling.
  •  Expanding resources suggests a larger mine may be possible. The company’s current scoping assumes production of ~58k oz/year (RCKS est. ~56koz/year); however continued exploration success could see this potential mine exceed 100koz/year. 
Valuation:
Current share price does not reflect hard rock value; let alone conglomerate optionality.
Our recently updated preliminary estimate for De Grey’s hard rock assets is A$0.30-0.45/share. While this reflects a potential doubling of the current A$0.15 share price, near-term head winds for the share price may include 60M in-the-money options (at A$0.10, expiring November 30) and the remaining A$10.4M cash payment for the Indee project. Upcoming catalysts: 1) Additional exploration results and 2) PFS in Q4/18.

 

04-Oct-2018

DeGrey Mining Ltd.

Mr. Market Misses the Point! Mineable Ounces More than Doubled with Updated Resource

Impact: Positive

De Grey Mining has announced a 15% increase in the overall resource but importantly has resulted in more than doubling the mineable resource at its Pilbara Gold Project in Australia. We believe the market has been underwhelmed by the 15% increase; however, we think the market missing the key point. The fact that the minable ounces increased by 127% right before releasing an open pit pre-feasibility study is very positive news (PFS expected by year end). This news supports our investment thesis that De Gray provides exposure to a solid hard rock development play whilst having the optionality of the Pilbara conglomerate.

  • De Grey adds low-cost gold ounces. The increase in M&I resources highlights the company’s success in infilling and expansion drilling focused on ounces that can be included in a mine plan. The company noted that it believe it has added 391koz (+127%) to the open pit mine plan in the PFS, which are near-surface resources at a depth of less than 100m, further reflecting the upside potential of continuing to add low-cost higher-grade ounces to the company’s multiple satellite deposits, which all remain open along strike and at depth (Figure 2).
  • Results significantly increase valuation ahead of PFS. Following the addition of 391koz Au to the open pit mine plan, we have adjusted our preliminary valuation of De Grey’s hard rock assets to include an additional 6Mt at 2.1g/t Au, increasing our estimated mineable resource estimate by 127%. Our estimates now assume a mine-life of 11 years (was 4.75 years), with average annual production of 56k oz (was 56koz annually) at cash costs of US$767/oz (was US$871/oz). As a result of these changes our preliminary valuation for De Grey’s hard rock assets to A$0.30-0.45/share (was A$0.15-0.23/share).
  • Defining a high-grade underground resource to be a future focus. Drilling on the property, which includes 154 reverse circulation (RC) holes and 3 diamond (DD) holes, has previously been focused on targeting near surface mineralization limited to 100m in depth. The company has announced that deeper drilling will be a significant component of future exploration on the property, which the company has already been doing at its Withnell property with the recent intersection of gold mineralization with sufficient grade and thickness to consider an underground target (Figure 3). Drilling at underground targets opens the door to a potential higher-grade underground resource, which the company intends to highlight in a Scoping Study, to follow the Open Pit PFS.
Stock expected to double from here. Our A$0.30-0.45/share preliminary valuation for De Grey’s hard rock assets does not account for the potential of its conglomerate assets, where the company has recently commenced a bulk sampling program. We continue to believe that De Grey’s current valuation provides investors a free option on the conglomerates, as the share price does not appear to properly reflect the hardrock assets. Next catalysts include additional exploration results (both hard rock and conglomerate) and a PFS for the company’s Pilbara Gold Project in Q4/18.

 

01-Oct-2018

De Grey Mining Ltd.

Higher-Grade Drill Results Expand Withnell to Depth; Results Open the Door to a Potential Underground Target

Impact: Positive

De Grey Mining has reported new high-grade intercepts at beneath their Withnell proposed open pit at the Pilbara Gold Project in Western Australia. Importantly, results from the recently completed 15 drill hole program suggest the open pit plan could include a potential higher-grade underground target. This could significantly increase the value of the overall deposit.

  • Higher-grade results expand the known envelope of mineralization and opens the potential for an underground target. Highlights include 4.85 m @ 8.46g/t Au from 158.15 m and 7.97m @ 6.85 g/t Au from 137.03 m immediately below the existing 377,300 oz Au resource.  
  • System remains open. The gold system at Withnell remains open along strike and at depth, with improving grades. We see the potential of extending the previously defined ultimate pit limits found in the company’s 2017 Scoping Study (pit is currently being contemplated down to 120m depth). 
  • Mineralization is of sufficient grade and thickness to consider an underground target; more data on the come. We believe the drilling that was released today opens the door to a potential higher-grade underground resource and the company plans to do more work to support this potential. 
Our preliminary valuation of De Grey’s hard rock assets of A$0.15-0.23/share does not account for the potential of its conglomerates or the recent hard rock exploration success. We continue to believe that De Grey’s current valuation provides investors a low-cost option on the conglomerates, which is underpinned by traditional hard rock assets that have demonstrated resource growth. Next catalysts include a resource update in October 2018, additional exploration results and a PFS for the company’s Pilbara Gold Project in Q4/18.

 

10-Sep-2018

De Grey Mining Ltd.

De Grey Continues to Grow Mt Berghaus & the Pilbara Gold Project

Impact: Mildly Positive

De Grey Mining has reported additional infill drill results from the Mt. Berghaus Gold deposit within the company’s Pilbara Gold Project, which is located 60km south of Port Hedland, Western Australia.

  • Highlights include 18m grading 2.48g/t Au (BGRC230), 24m grading 2.05g/t Au (BGRC231) and 23m grading 2.2g/t Au (BGRC241), which all intersected near-surface gold mineralization expected to increase the resource at Mt Berghaus
  • The ongoing infill program is expected to improve project economics by both expanding the existing resources and reducing the strip ratio for the various pits in the planned pre-feasibility study (PFS)
Our preliminary valuation of De Grey’s hard rock assets of A$0.15-0.23/share does not account for the potential of its conglomerates or the recent hard rock exploration success that the company has had. We continue to believe that De Grey’s current valuation provides investors a low-cost option on the conglomerates which is underpinned by traditional hard rock assets with resource growth potential. Next catalyst includes a PFS for the company’s Pilbara Gold Project (Q4 2018), preceded by ongoing exploration results.

07-Aug-2018

De Grey Mining Ltd.

Amanda Drill Results Increase Resource Size Potential

Impact: Mildly Positive

De Grey Mining has reported additional positive RC drill results at the Amanda and Amanda East gold deposits, highlighting strong continuity of mineralization.
  • Highlights out of Amanda include: 14m of 4.94g/t Au from 19m depth, including 6m of 10.85g/t Au (AMRC011). Amanda East yielded results including: 2.84g/t Au over 7m from 9m depth (AMRC032) and 1.35g/t Au over 23m from 10m depth (AMRC030)
  • Gold mineralization remains open at depth and along strike to the east and west, including the 500m of strike between Amanda and Amanda East; deposit contains longer term potential for higher grade plunging gold shoots
  • These drill results continue to highlight the prospectivity of De Grey’s Pilbara project and are to be included in the upcoming resource update, which the company expects will increase the total resource size and improve resource classification for a PFS
Our preliminary valuation of De Grey’s hard rock assets of A$0.15-0.23/share does not account for the potential of its conglomerates or the recent hard rock exploration success that the company has had. We continue to believe that De Grey’s current valuation provides investors a low-cost option on the conglomerates which is underpinned by traditional hard rock assets with resource growth potential. Next catalyst includes a PFS for the company’s Pilbara Gold Project (Q4 2018), preceded by ongoing exploration results.

23-Jul-2018

De Grey Mining Ltd.

De Grey Finds Fresh Conglomerate at Jarret Well

Impact: Positive

De Grey Mining has reported the first diamond drill hole results from the Jarret Well Prospect as well as planned conglomerate gold exploration activities at the Pilbara Gold Project in Western Australia.
  • The Jarret Well drill hole intersected fresh conglomerate sequence from 57.5m - 97m depth, including 11.6m of pyrite rich pebble conglomerate towards the base of the conglomerate package
  • The intercepted conglomerate appears to be very similar to what was reported by Novo Resources at the Comet Well and Purdy’s Reward prospects, 120km to the west
  • Due to the nuggety nature of the mineralization, assays are not expected to be representative of gold grade, however, downhole sampling will be used for geochemical characterization of rock types and potentially as a pathfinder for bulk sampling
Our preliminary valuation of De Grey’s hard rock assets of A$0.15-0.23/share does not account for the potential of its conglomerates or the recent hard rock exploration success that the company has had. We continue to believe that De Grey’s current valuation provides investors a low-cost option on the conglomerates which is underpinned by traditional hard rock assets with resource growth potential. Next catalyst includes a PFS for the company’s Pilbara Gold Project (Q4 2018), preceded by ongoing exploration results.

03-Jul-2018

De Grey Mining Ltd.

Continued Hard Rock Success; Toweranna Results Impress

Impact: Positive

De Grey Mining has released drill results from the Toweranna Gold Deposit in the Pilbara, confirming further infill mineralization within existing resource limits at the Western Zone and intersecting new shallow high-grade gold lodes at the Southern, Northern and Eastern Zones.

  • Mineralization remains open along strike and at depth, drill intersections included 4.82g/t Au over 22m and 17.29g/t over 7m; diamond drilling assays for 9 holes are pending, though visible gold was noted in quartz veining at a 173m depth
  • Toweranna only represents a small area of the current overall resource (1.21Moz at 1.6 g/t) and is expected to be a key area to expand the existing resource
  • These results continue to highlight the prospectivity of De Grey’s Pilbara project and ongoing drill results from the companies, active program are expected to demonstrate the potential of its traditional hard rock assets
Our preliminary valuation of De Grey’s hard rock assets of A$0.15-0.23/share does not account for the likely resource growth demonstrated by these results. We continue to believe that De Grey’s current valuation provides investors a low-cost option on the conglomerates which is underpinned by traditional hard rock assets with resource growth potential. Next catalyst includes a PFS for the company’s Pilbara Gold Project (Q4 2018), preceded by ongoing exploration results.

15-Jun-2018

De Grey Mining Ltd.

New Shallow Gold Zones Identified at Mallina

Impact: Positive

Drilling at the Mallina deposit continues to yield positive results as De Grey continues to expand its Pilbara gold assets. The stacked en-echelon lode type deposit has a strike length of 3km and is open at depth and along strike, with high potential for discovery of additional lodes and linking structures.
  • New shallow gold zones identified with 30 holes intersecting greater than 10g*m, which strengthening the continuity of mineralization and are likely to be included in the new expanded PFS open pit shells
  • Deposit continues to grow with each round of drilling and remains open along the strike of 3km and at depth
  • An updated 2018 global resource estimate is planned to be completed once the results have been received for all drilling across the Pilbara Gold Project up to the end of June
Our preliminary valuation of De Grey’s hard rock assets of A$0.15-0.23/share did not account for the likely resource growth demonstrated by these results. We continue to believe that De Grey’s current valuation provides investors a low-cost option on the conglomerates which is underpinned by traditional hard rock assets with resource growth potential. Next catalyst includes a PFS for the company’s Pilbara Gold Project (Q4 2018), preceded by ongoing exploration results.

22-May-2018

De Grey Mining Ltd.

Another Corporate Takes a Significant Interest in De Grey

Impact: Mildly Positive

De Grey Mining announced that DGO Gold Ltd (ASX:DGO) is investing A$5M at A$0.20 per share (25M shares). With each two shares purchased DGO is also receiving an option at A$0.25/share expiring November 2019 (12.5M options) and an option at A$0.30 expiring May 2021(12.5M options). DGO’s shares are subject to a voluntary 12-month hold.

  • DGO now owns 7% of the basic shares outstanding (13% partially diluted), making it the second significant corporate investor – recall Kirkland Lake Gold (TSX:KL) owns 9.3% of the basic shares outstanding (17% partially diluted).
  • DGO plans to complete a rights offering, which is backed by its significant shareholders, to fund its investment; however, we would note that barring continued significant support from its major shareholders, DGO may have issues maintaining its pro-rata position or funding its option exercises
  • DGO investment is based on the potential of the traditional hard rock shear zones, which currently hosts a resource of 1.2M oz Au, whereas Kirkland Lake’s interest is primarily on the conglomerates
In our opinion, adding a second significant shareholder, at a 17.6% premium to the current share price, is positive. We continue to believe that De Grey’s current valuation provides investors a low-cost option on the conglomerates and on the resource growth on the traditional hard rock assets.

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