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Monday, October 10, 2016 Derek Macpherson

GRR’s Grade Control Drilling Likely to Grow San Albino


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Golden Reign Resources (TSXV:GRR) released additional results from its ongoing infill drill program at its San Albino project in Nicaragua. These results further de-risk the project and in our view, increase the likelihood of an expansion to 500 tpd. The company is currently awaiting the completion of the permitting process to start construction on the 250 tpd operation, with first production expected in late 2017. Golden Reign currently trades at a slight premium to peers which we believe is warranted given the project´s exceptional economics and exploration upside. 


Drilling results confirm higher grades. The San Albino results were highlighted by 38.38 g/t Au and 43.6 g/t Ag over 6m including 55.10 g/t Au and 59.7 g/t Ag over 2m (SA16-RC-61). Overall the grade control drilling program returned a weighted average grade 9.01 g/t Au and 16.51 g/t Ag over an average width 2.35m. This compares favourably to the planned open-pit grades of 7.05 g/t AuEq. In our view, the grade control drilling helps de-risk initial production.

Merging smaller pits may improve project economics. Drilling continues to suggest that two of the smaller pits can be combined and indicates that the deposit may be extended approximately 70m down-dip to connect the two pits with a larger third planned pit (Figure 1). In addition, Golden Reign confirmed the existence of El Jobo, a new zone which previously was considered to be a branch of San Albino. The planned expansion/merger of the open pits is likely to result in resource growth, which may accelerate the company’s plan to expand operations to 500 tpd from the planned 250 tpd.


Premium valuation warranted. Golden Reign currently trades at C$49/oz, a slight premium to peers at C$45/oz. Given the San Albino’s exceptional economics (AISC of US$464/oz, IRR of 37.4%) and the significant exploration upside of Golden Reigns’ land package, we reiterate our view that GRR´s premium to peers is warranted. Given the streaming agreement with Marlin Gold (TSXV:MLN), which only covers a small portion of the property, Golden Reign should have sufficient funds to complete the construction of the 250 tpd operation (initial capex estimated at US$13.9 million). We expect Golden Reign to finance any further expansion out of cash flow. This provides investors a unique opportunity to participate in a production re-rating without significant funding requirements.

Company Description: Golden Reign Resources Ltd. (TSXV: GRR) is a mineral exploration company engaged in exploring the San Albino-Murra Property and the El Jicaro Property, both of which are located in Nueva Segovia, Nicaragua.

Derek Macpherson | VP Mining Analysis
Sunneva Bernhardsdottir | Associate, Mining Analysis
Victoria Ellis Hayes | Associate
 
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