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Wednesday, October 11, 2017 Derek Macpherson

NEE PEA Expands Moss Mine; Improves Project Economics


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Northern Vertex Mining Corp. (TSXV:NEE) reported results from a PEA completed for its Moss mine outlining an alternative mine plan which includes existing resources currently excluded from the mine plan. The previous feasibility study (FS) completed in 2015 is based on a mine plan constrained by the company’s patented claims, not by resources, whereas the PEA removes this restriction, materially improving project economics. The key step for the company to realize this value is acquiring permits for the surrounding land, a process which is likely to start once the powerline and road upgrade permitting process is complete. While this upside potential is important, we believe that ongoing construction updates and first production are likely to be the key near-term catalysts for the stock.


Expansion to materially extend mine life. The reason for the PEA was to outline an alternative mine plan which includes additional resources from the company’s adjacent un-patented mining claims. The current FS is constrained by the company’s patented claims, not by resources, as highlighted by our recent site visit. The expansion would siginificantly increase mine life from 5 years to 10 years, increasing mineable resources by 113% to 17.1 million and AuEq oz by 89% to ~455k. The PEA includes Federal public lands administered by the Bureau of Land Management (BLM), which would mean the company would require additional permits. The infrastructure currently under-construction for Phase II, is essentially what would be required for the contemplated mine-life extension, including some minor additions such as heap-leach pad and waste pile expansions. In addition, the company is planning to begin an exploration and resource expansion program within 6 weeks.

Longer-life contemplated in the PEA has better economics. Capital costs for the PEA are US$61.6 million which includes US$37.5 million for the construction of the Phase II mine, as well as Phase III expansion costs of US$2 million for permits, US$17.9 million for infrastructure and a contingency of US$4.2 million. Cash cost (net Ag credits) and AISC remained relatively unchanged. After-tax NPV increased by 68% over the 2015 FS to US$93 million with an IRR of 52.5%, a 19% increase. (Figure 1)


Valuation does not reflect likely reserve growth. Northern Vertex currently has an EV of ~C$81 million, implying an EV/oz of C$170/oz and while this is a premium to development stage peers (C$52/oz), this is warranted because the company is fully financed and close to the start of production. As well, the recent share price move, suggests the market is starting to apply some value for the mine-life extension contemplated in this PEA. We note that beyond the resources that could be brought into the mine-plan, there remains regional exploration upside. In our view, near-term share price movements are likely to be driven by construction and commissioning updates, along with the start of production, which continues to remain the company’s focus.

Priced as of close October 10, 2017

Derek Macpherson | VP Mining Analysis
Victoria Ellis Hayes | Associate
 
Red Cloud Klondike Strike Inc.
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Priced as of prior trading day's market close, EDT (unless otherwise noted).
All values in USD unless otherwise noted.

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Northern Vertex Mining Corp. - TSXV:NEE - 1,2,3,4

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