RCKS Talk

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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