High Value Metal Inventory: The value of PNX’s resource inventory has grown in the last 12 months, with a new 156koz Au resource at Fountain Head (93% recovery) and the value of the Hayes Creek polymetallic deposit (4.1Mt @ 1.8g/t Au, 124g/t Au, 4.4% Zn) boosted by silver prices (16.2Moz Ag equivalent to 187koz Au at US$28/oz Ag at 77% recovery and Au at US$1854/oz Au, 60% Au recovery).
Large Ground Position in the Pine Creek region of the NT, >150kha, historic gold endowment 10Moz including Kirkland Lake’s (ASX: KLA) Cosmo Mine (2Moz) with potential for discovery of both gold and base metal deposits.
Precious Metal Leverage: Both Fountain Head and Hayes Creek are 100% owned. Silver and gold are the dominant revenue for Hayes Creek, US$227M gross revenue at spot for silver and US$150M for gold (55% of gross revenue, remainder zinc). A JORC (2012) update on Glencoe is due shortly.
Gold Exploration Potential: Prospects where promising gold intercepts have been discovered include Cookies Corner: 12m @ 2.18g/t Au from 12m (CCRC005); 6m @ 3.72g/t Au from 71m (CCRC002) and others including Western Burnside & Western Arm North where WMC drilled 12m @ 11.4g/t from 6m (MPQC26) and 5m @ 15.02g/t from 39m (MPQC36).
Tight Register: Major shareholder (Delphi, German) owns 44%.
Undervalued Opportunity: PNX continues to add value through exploration and project development (planning, approvals) which is yet to be reflected in the share price or valuation of the company, despite the improved environment for precious metal development companies. Progression towards production combined with growing gold inventory could change this, leading to re-rating.
15 February 2021
AUSTRALIA
GOLD/SILVER/ZINC
PRE-DEVELOPMENT
EXCHANGE: ASX: PNX
CAPITAL PROFILE
DIRECTORS
James Fox (Managing Director) Graham Ascough (Chairman) Peter Watson (Non-Exec Director) Paul Dowd (Non-Exec Director) Hans Jörg-Schmidt (Non-Exec Director) Hansjoerg Plaggemars (Non-Exec Director) Angelo Gaudio (Co..Secretary)
Mr James Fox, Managing Director Tel: +613 8364 3188 Lvl1, 135 Fullarton Road, Rose Park, South Australia 5067 www.pnxmetals.com.au [email protected]
PNX Metals Limited Gold and silver developer preparing for mine approval
Share Price: A$0.008 Speculative Buy
PNX Metals (ASX: PNX) holds a unique mix of zinc, gold and silver assets 170km south of Darwin in the Northern Territory. Gold resources of 400koz, 16.2Moz of silver and 180kt of zinc, are located on 100% owned Mining Licences.
At the Fountain Head Gold Mine, construction of a ±A$40M CIL plant is being evaluated with potential for commencement in 2021. The recent Glencoe acquisition (43koz at 1.9g/t, JORC 2004) shows promise to augment the gold mine and grow resources.
We have a Speculative Buy, with a 12-month target price of 2.5cps, predicated on the ability of the company to successfully grow gold resources (we see >500koz potential excluding Hayes Creek) and commence construction of the Fountain Head Gold Mine in 2021.
COMPANY STATISTICS
*Dec-20A = December quarter 2020. FY20A = Financial year end 30 June, 2020
Exploration/Development (A$M)
Corporate (A$M)
Exploration/(Expl.+ Corporate) (%)
Funding duration at current burn (years)
Shares on issue (pr end) (M shares)
Drilling - RAB/Aircore (m)
Drilling - RC/Diamond (m)
Land holding ('000 ha)*
Capital raisings (A$M)
Other funds recieved (A$M)
Cash (A$M)
Cash backing (Ac/share)
* Tenements held and under application. Quarters refer to calendar year. Drill metres are RCR estimates.
COMPANY COMMENT Overview: PNX Metals Ltd (ASX: PNX) is progressing with a proposed 2-stage gold and base metals development, with planning underway for mining of gold ore from the Fountain Head and Glencoe open-pit deposits followed by zinc/gold/silver processing from Hayes Creek, all located a short drive south of Darwin in the Pine Creek region of the Northern Territory, adjacent to power, water and main roads.
The Hayes Creek Project (4.1Mt @ 4.35% Zn, 1.8g/t Au, 127g/t Ag + Pb/Cu) was the subject of a PFS in 2017, which showed a robust project with IRR of 73% and pre-tax NPV of A$133M (10% discount rate). We obtain a spot pre-tax NPV (10%) of A$213M, up 57% since 2017 (Table 1, p7).
The Fountain Head Gold Mine (2.94Mt @ 1.7g/t Au, 156koz) represents a lower capital and more strategic initial development option, capitalising on the strong A$ gold price. Mine approval likely 3Q21 with construction completion in 2022. Our spot post tax NPV (8%) is A$95M (Table 2, p12).
Company history: PNX listed on the ASX as Phoenix Copper in early 2008 with Cu projects in South Australia.
The Hayes Creek Project was acquired from Newmarket Gold (later taken over by Kirkland Lake) in August 2014 and PNX conducted several rounds of drilling which expanded resources across two main polymetallic deposits.
The name changed to PNX Metals mid-2017, as the company focused on the Hayes Creek Project in the NT following PFS completion (summary shown Table 1, p7).
Since 2018 the priority has been on defining near-surface oxide and free milling gold resources at the Fountain Head Gold Mine, as Stage 1 of the planned development of resources in the area. Subject to final approvals and funding, construction could commence later in 2021.
Key opportunities and risks:
Gold Resource Growth: In a relatively short space of time (18 months) PNX defined a 156koz gold resource at Fountain Head around the old open-pit area, which remains open at depth and along strike with visible gold common.
PNX owns Fountain Head 100%, and aims to fast track gold production at the same time as continue to explore for additional oxide gold deposits in the district. Bonnie Creek oxide, and the recent Glencoe deposit purchase are likely to add to the mineable gold inventory.
There are numerous opportunities to extend the strike potential of gold deposits in the area, along with conducting deeper RC drilling to further grow resources and identify potential underground targets for later follow-up.
We see good potential for >0.5Moz of gold here in coming years considering Cosmo (40km south of Hayes Creek) is 2Moz+ and the overall Pine Creek region hosts >10Moz.
Gold mineralisation with potential to add to resources has been identified by PNX within tenement areas including:
• Glencoe: Acquired by PNX Metals (refer to ASX release 10 December 2020) hosts a JORC (2004) resource of 43koz with good exploration potential, along strike from the Fountain Head Gold Mine. Primary drilling target 2Q21, a JORC (2012) update is due soon.
• Western Burnside & Western Arm North: North of Cosmo and on the same fertile structure, considerable surface expression of ~5km. Limited near-surface historic drilling by WMC including 12m @ 11.4g/t from 6m (MPQC26), 5m @ 15.02g/t from 39m (MPQC36).
• Cookies Corner: drilled in 2018 by PNX with results such as 4m @ 2.9g/t Au from 35m (CCRC017), 4m @ 2.1g/t Au from 37m (CC004). 800m strike length open to the north and south. Could add tonnes to the resource inventory for the Fountain Head Gold Mine.
PNX control exploration tenements in the Burnside/Chessman area near Pine Ck (Kirkland Lake 10%) and 100% of mining tenements hosting the gold and polymetallic resources. Numerous other prospects exist for drilling and potential expansion (Chimera, Medusa, Maria) in this well endowed gold mining district.
Production Opportunity: The Fountain Head Gold Mine has transitioned from a potential Heap Leach to a standard Carbon-in-Leach (CIL) plant proposal (±750ktpa).
Fountain Head could produce ±30kozpa and generate A$20-
A$25Mpa cashflow over 5-7 years (refer to Table 2, p12 for assumptions). For lower capital (±A$40M compared to
±A$60M for Hayes Creek) it could set the company up to
expand later and reduce future equity dilution.
The Fountain Head void can then be used as tailings storage for Hayes Creek. The incremental addition of a flotation plant to process Hayes Creek zinc ore at the right time adds optionality, with scheduling dictated by both exploration success and metal prices. Hayes Creek has >9Moz of silver recovered in our mine assumptions, not insubstantial should silver prices run further. NPV has risen 57% since the 2017 PFS was completed based on our calculations (Table 1, p7).
Valuation: PNX has almost 400koz of gold and 16.2Moz Ag (187koz AuEq at US$28/oz, 77% Ag recovery) in resource inventory (excluding Glencoe). With gold companies in Australia starting to be rerated and trade at relatively high multiple for resources (>A$100/oz in many cases) PNX appears under-valued trading closer to A$40/ozEq.
Share price catalysts in 2021 include potential resource upgrades, further positive exploration results and progress on mine development at Fountain Head.
Taking a modest resource multiple of A$100/oz based on our assumption of growth of 150kozAuEq to 700-750koz AuEq (Au/Ag only) or 40-50% of our conceptual NPV for the Hayes Creek Project and Fountain Head Gold Mine we obtain a valuation range of A$75M to A$90M (A$0.022/share to A$0.026/share). Refer to Table 3, p14.
Risks to our assumption outside of the macro-economic environment, relate to both market perception and actual speed at which PNX can execute on achieving progress such as drilling and resource growth, which we see as a key future driver of the share price.
A recent example of a mining development company in the Northern Territory being re-rated is Core Lithium (ASX: CXO) which has gone from 4cps to 32cps since November 2020, and is now a A$315M company. A good vote of confidence for mining in the Northern Territory.
Investment Comment: RCR’s 12-month share price target for PNX is A$0.025/share. This is based on the expectation of ongoing discovery and a growing resource base in 2021, combined with a continuation of the buoyant gold price environment seen in 2020.
We expect Kirkland Lake could either re-start the nearby Cosmo Gold Mine or sell it, which may re-focus on the value of PNX’s ground position surrounding the mine.
A key potential catalyst may be exploration results with drilling to kick-off around Fountain Head, Glencoe and other areas 2Q21. Shallow gold resources could add directly to the near-term production profile.
If PNX can repeat some of the previous work which generated multiple visible gold occurrences and good economic widths which can grow the resources rapidly, this can underpin a longer mine life and generate market appreciation for what is a promising development story.
Hayes Creek Project (PNX 100%) Project Summary and History
The project is situated along the Adelaide Highway about 90 minutes south of Darwin, near the town of Hayes Creek which is reached before the town of Pine Creek, a further 40m south (Figure 1).
Well serviced by roads, water and power, the area has a history of mining with the oxide ores at Mt Bonnie and Iron Blow mined for gold in the 1980s (Henry and Walker Group, 110kt @ 7g/t Au, 230g/t Ag).
PNX acquired the project from Newmarket Gold (now part of Kirkland Lake, ASX: KLA) in 2014, and commenced drilling to increase the confidence, and potentially expand the resources which they subsequently did.
PNX declared a JORC (2012) compliant Mineral Resource of 2.6Mt @ 2.4g/t Au, 130g/t Ag, 0.9% Pb, 4.8% Zn and 0.3% Cu at Iron Blow on 3 November 2014 (Inferred).
A JORC (2012) compliant resource was later declared at Mt Bonnie on 1 February 2016 for a total of 1.3Mt @ 1.3g/t Au, 130g/t Ag, 4.2% Zn, 1.3% Pb and 0.3% Cu (35% Indicated).
Hayes Creek Region
Pine Creek Region
Refer to page16 of
Annual Report, 2020
Moline
Burnside/Chessman 90%* 19 111.30
100%
NT
MLN794, MLN795,
ML30936; EL31893;
EL310998.485100%Other
Project
Status/Tenements
No.
Tenements
0.17
0.89
ML311124; MLN1020;
MLN1034; MLN4100%
State
MLN346,
MLN341,342,343;
ML30512, ML30589;
MLN1033, 1039;
MLN214, 346, 349, 405,
459, MLN811, 816
4
NT
Grand Total 46
NT
150.6
Area (kHa)Region Projects Equity
29.80
14100%South of Darwin
South of Darwin towards Pine
Creek
Hayes Creek
Fountain Head
ML24173; MLN1059;
MLN41; EL286164 NT
NTKatherine Area
Zn Cu Ag Pb
(%) (%) g/t (%)
Indicated
Inferred
Indicated
Inferred
2,080 5.5 0.3 143 0.9
Inferred 450 1.1 0.1 27 0.2
Total 2,530 1.1 0.1 27 0.2
Indicated 1,375 4.0 0.2 128 1.2
171 2.1 0.2 118 0.87
Total 0.2 127 1.12
0.3 124 0.91
1.41 62.3
66.7
171.2
146.5
890
Fountain Head Mineral Resource
4.4
Mt Bonnie
1.71 24.7
2.10
Total NT Gold Resources (PNX) 394
41
1.6
Total Fountain Head Area 1.71,830
56
100
1.34
1.81
56
1562,940
Indicated
Total Hayes Ck Mineral Resource
100%
Total
Inferred
Iron Blow
Hayes Creek Mineral Resource
Tally Ho Indicated 940 59
Code for reporting mineral resources - Australian:
A Scoping Study was released on 31 March 2016, showing a project with A$54M in pre-production capital, pre-tax NPV of A$109M (10% DCF) and 7 year mine life based on a Mineral Inventory of 2.8Mt (400ktpa). Recovery of 80% for zinc, 50% for gold and 70% for silver were assumed at prices of US$2555/t Zn, US$19/oz Ag and US$1236/oz Au (AUD/USD 0.78).
Following further drilling and mining studies, a Pre-Feasibility Study was completed in 2017 (refer to ASX release dated 12 September 2017) which supported a 6.5yr, 500ktpa mostly underground project (75%) producing annually in concentrates around 18kt of zinc, 15kozpa gold and 1.4Mozpa silver for an estimated capital cost of A$58M for a 450ktpa plant.
NPV was quoted at A$133M pre-tax (10% discount rate) with an IRR of 73%. Average prices utilised in the PFS were US$1289/oz for gold, US$19.40/oz silver and US$2570/t zinc (USD/AUD: 0.78). Recoveries were later updated with further metallurgical work to 77% Ag, 60% Au, 89% Zn and 58% for Cu/Pb at Iron Blow (2.53Mt @ 2.1g/t Au, 27g/t Ag, 1.1% Zn) resulting in a potential 16% boost to gold recovered (13koz) and 11% (1Moz) of additional silver recovered (refer to ASX release dated 9 April, 2019).
The DFS which commenced after, and continued in 2018/19 was more recently put on hold to focus on the immediate opportunity of gold development at Fountain Head, for a number of business reasons (strategic location of old pit, lower capital needs for gold development and current high prices for A$ gold).
Figure 1) Location of Hayes Creek Project, Northern Territory
Figure 2) Hayes Creek location showing Mineral Leases
Source: PNX Metals (supplied)
Hayes Creek Project Development Potential and Valuation The DFS was progressed following the 12 September 2017 PFS publication, however slowed down when metal prices (and TCRCs) moved against the project in 2018/19. The recent improvement in A$ pricing places a renewed focus on how to best develop the project, in light of the lower capital (less risky) opportunity for open cut oxide gold at Fountain Head.
PNX recently quoted a spot pre-tax NPV (refer to presentation dated 28 October 2020) of A$190M using US$1909/oz gold and US$24.50/Ag, US$2750 Zn and a US$0.71 exchange rate. We obtain a spot pre-tax NPV of A$210M (refer to Table 1 p7 for assumptions).
The Hayes Creek Project is unique in many ways, with the high gold and silver content making it more attractive with >50% of the revenue from gold and silver at spot prices despite modest recoveries (Refer to Figure 3, following). There is upside to the recoveries utilised both in the PFS, and in our conceptual model.
Other precious metal rich base metal deposits include the Hera Deposit of Aurelia Metals (ASX: AMI) and the zinc/silver rich Thalanga Resource of Red River Resources (ASX: RED) however all deposits are geologically different and contain differing metal assemblages, typical of VMS or replacement-style orebodies (Figure 4).
Paris Silver (ASX: IVR): 9.3Mt @ 139g/t Ag, 0.6% Pb for 42Moz Ag (0.55Moz AuEq or 1.8g/t AuEq)
Hayes Creek (ASX: PNX): 4.1Mt @ 124g/t Ag, 1.8g/t Au, 4.2% Zn + Pb/Cu (0.69Moz AuEq or 10.3% Zn Eq1)
Figure 3) Hayes Creek Project revenue split (spot pricing, USD)
Source: RCR Estimates, 29 January 2021. Gross revenue excludes Ag loan, royalties and other costs.
It is worth noting that the parent company that begun mining Hera (YTC, now AMI) is a A$500M company, with the recent A$200M purchase of the Dargues Reef gold mine in NSW (at a large A$580/oz resource multiple). When Hera was operational, it reported low cash costs, for example in FY18 Au AMI reported AISC of A$430/oz based on 60koz Au production in FY18 (plus 13kt Zn, 9.6kt Pb) generating around A$70Mpa in free cashflow for the group.
It is also important to consider the market capitalisation of Investigator Resources (ASX: IVR) has grown from ~A$10M to >A$110M since May 2020, on the back of improved silver prices and increasing expectation that silver prices can outperform gold in coming years, considering years of underperformance.
With more than 50% of revenue at spot prices potentially from gold and silver, the Hayes Creek Project is relatively unique from a base metal perspective (though comparable to say the Hera deposit of AMI, more gold rich).
Hayes Creek could be considered a precious metals project however the lower recoveries and payability of Au in concentrate, make it more like a base metals project with flotation and sale of a bulk precious metal concentrate planned. Despite this, at current prices, based on our estimates the project generates 54% of revenue from Au and Ag with Au/Ag prices having risen around 30% since the PFS was completed in 2017.
Figure 4) Comparison of Hayes Creek with other Australian VMS deposits
Source: RCR estimates based on spot prices 29 January 2021. *AMI data used is the Hera Deposit. Metal equivalent grades adjusted for recovery factors (actual or expected) in accordance with JORC (2012) code, except Au.
Figure 5) Hayes Creek Project silver production (PFS schedule vs RCR assumptions)
Source: Company PFS, refer to ASX release dated 12 September 2017.
Table 1) RCR conceptual valuation for Hayes Creek (PFS vs SPOT)
Source: Adapted from ASX release dated 12 July 2017. *RCR conceptual valuation, spot closing prices on LME 29 January 2021. PFS work later modified with additional metallurgical testwork, drilling and mining studies hence gold and silver grade reduced since Dec-2017. NQ = Not Quoted. Recovery assumptions: 89% for Zn, 77% for Ag, 60% for Au in Spot Model (refer to ASX release 8 June 2017).
The challenge with the process design for Hayes Creek has been to optimise the precious metal recovery, whilst maintaining a high grade (>57%) clean zinc concentrate for sale. Post-PFS optimization in 2017/18 saw higher silver and gold recovery, however lower ounces produced due to refinement of the mine schedule.
More recent work (ASX release dated 9 April 2019) demonstrated potential for an additional 13koz Au and 1Moz Ag recovered from the Iron Blow deposit, thus restoring the gold and adding more silver. We have incorporated these probable changes in our forecast cashflow assumptions summarised in Table 1.
We do not assume any revenue from copper or lead, however some later payability is possible depending on the sales arrangements.
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
The Fountain Head Gold Mine is located around 12km from the Hayes Creek VMS deposits of Iron Blow and Mt Bonnie.
The deposit was mined in the 1980s, and later held by Crocodile Gold (TSX: CRK) and others. As announced to the ASX on 31 January 2018, the 4 Mineral Leases were acquired from Kirkland Lake (ASX: KLA) by PNX for nil consideration in a tenement swap deal.
Adjacent to the main Darwin highway to Adelaide River, the location also has high voltage power, rail, gas and water which serves to reduce capital costs, if used as a processing site for the Hayes Creek VMS deposits.
PNX announced a maiden JORC (2012) compliant resource at Fountain Head Gold Mine on 11 July 2019 of 2.58Mt @ 1.7g/t Au for 138koz (60% Indicated, 40% Inferred).
The latest resource estimate released on the 15 July 2020 was 2.94Mt @ 1.7g/t Au for 156koz (80% Indicated) and the deposit remains open in many areas, with further drilling likely to expand the resource further we believe.
Gold resources are associated with an anticlinal geological feature, where gold is present in quartz veins, saddle reefs and ladder style veins either sub-parallel or parallel to interbedded metamorphic schists. Strong structural correlation with anticlinal folds and fold apex geometry.
PNX announced the A$1.9M acquisition of the Glencoe Project situated less than 3km from the Fountain Head Gold Mine on 10 December 2020. The project has a historical resource estimate (JORC 2004) of 0.7Mt @ 1.9g/t Au for 43koz.
PNX intends to upgrade resources at Glencoe to JORC (2012) in coming weeks and incorporate into mine planning at Fountain Head ahead of submission of EIS and the final approval process.
The Glencoe deposit is open in many places, with only shallow drilling (30m) in some locations. With four main lodes present over 500m in strike, there are numerous broad intercepts which show the mineralisation is not closed off (such as 14m @ 1.21g/t Au from 0m in GRCR281, and 27m @ 1.14g/t Au from 12m in GCRC253).
Importantly there are several kilometres of strike in between the Fountain Head Gold Mine and the Glencoe deposit in the north, and 1.5km of prospective strike to the south through to the Klondike alluvial workings.
Figure 8: Deposit layout and drilling focus at Fountain Head Gold Mine
Exploration and Resource Growth Potential PNX announced on 3 April 2020 that visible gold occurred in 9 intervals across a 35m zone of fractured quartz veining in drillhole FHDD181. This followed up on a result of 14m @ 9.22g/t Au from 17m in FHRC156, including 2m @ 48.6g/t Au from 19m. Assays were delayed until ‘early June’ then released on 17 July, following an updated mineral resource (16 June 2020) and announcement of a A$40M Joint Venture with Halifax Capital Pty Ltd for funding of the Fountain Head Gold Mine in exchange for a 50% equity stake.
The share price of PNX peaked at 1.7cps on 15 July 2020 after announcement of the Halifax deal (non-binding, was not completed).
On 17 July 2020 drill results from hole FHDD181 revealed a best result of 0.3m @ 14.3g/t Au from 172m, with the other 8 areas of noted visible gold not reflected in the assays. Whilst this can occur due to the coarse nature of the gold in the deposit, this result appears unusual. It is possible the cutting of the core did not fully capture the visible gold, or it was lost as part of the sample preparation and assay process (not uncommon, and two assay methods are used for high grade gold). A twin-hole or other drilling in the vicinity to test this area for depth extensions was not considered practical at the time, however follow-up of this highly prospective zone appears warranted. In our opinion the resources in the Fountain Head/Glencoe area can continue to grow and we see underground potential too however this is yet to be tested by drilling. It makes sense to add open-cut ounces now.
On 20 November 2020 PNX announced new targets for drilling at prospects near Fountain Head, including Banner where a previous intercept of 6m @ 39.5g/t Au from 54m and 19m @ 2.7g/t Au from 66m is reported historically.
Detailed rock-chipping, soil sampling and aeromagnetic surveying has been undertaken to define targets for follow-up drilling. Very little deeper drilling has been conducted in areas where soil cover is thicker. RAB holes had an average depth of 10m at Fountain Head South East, with deeper RC results including 1m @ 93.7g/t Au from 19m (TERC010) and 1m @ 31.9g/t Au from 31m (TERC011). Drilling is planned to commence post wet season in April, 2021.
Fountain Head Gold Mine Development An Environmental Impact Statement (EIS) for the Fountain Head development is expected to be lodged 2Q21, potentially amended to include the recently announced Glencoe Acquisition. We anticipate the priority for PNX will now be refining the mine plan, along with drilling to identify additional near-surface oxide gold inventory which can enhance the potential production profile.
Our model assumes both mining of Fountain Head, Glencoe and Mt Bonnie Oxide gold (total resources of 23koz are quoted in the oxide/transitional zone) refer to ASX release dated 16 November, 2020. Including the 43koz at Glencoe (JORC 2012 update pending) there is 223koz of gold identified (3.8Mt @ 1.81g/t Au) which is likely to grow with drilling. This excludes a potential 5koz in stockpiles at Mt Bonnie. Our base case scenario is 3.7Mt @ 1.44g/t Au mined (156koz produced) compared with our expanded case of 5.4Mt @ 1.56g/t Au (252koz produced) assuming growth (Table 2).
Our conceptual expanded production profile has gold production increasing from around 37kozpa to closer to 42kozpa, by improving the average feed grade to 1.56g/t Au from 1.44g/t Au (mining of multiple ore sources, chasing higher grades nearby).
Based on the very high grades in some of the drilling and the exploration potential (coarse visible gold identified at Fountain Head) we can see potential grade upside which is not reflected in the JORC (2012) resource yet.
Despite this potential, we have made only modest adjustment to grade in the expanded case however assumed inventory lifts to 271koz over time (Table 2, following).
Our concept model (expanded case) allows for processing of approximately 800ktpa over 6.7 years, with gold recovery of 93% and AISC (costs) around A$1445/oz (average LOM). Total ore mined of 5.39Mt @ 1.56g/t Au (271koz ROM) compared to the 226koz identified so far, hence we assume relatively modest growth of 50koz in the Mineral Inventory (and assuming all Glencoe converts to JORC Indicated Resources, update on this pending).
We see upside to this scenario in terms of resources and potential mine size, with a mine life of just under 7 years adopted in our model. There may be later potential to scale up to 50kozpa depending on exploration success (would involve capital expansion of the mill to >1Mtpa). The modelling shows the leverage of the project to both grade and throughput.
With the 1.2Mtpa Cosmo Mill and associated infrastructure sitting idle around 15km from the Fountain Head Gold Mine, should Kirkland Lake decide to either sell the mine or re-develop it, this could focus value on the area once again. Should PNX discover sufficient gold to potentially fill the Cosmo Mill, then this could be another option down the track or provide incentive for buyers of Cosmo to partner with PNX.
Table 2) Fountain Head Gold Mine conceptual modelling (RCR assumptions)
Source: RCR, 29 January 2021, spot prices utilised. Note the references to gold production in the above table are conceptual only, and in no way are to be interpreted as representative or any production or financial forecast from the Company. No detailed production schedule has been published by the Company, and thus any estimates are concepts only, and subject to a high degree of subjectivity. 10% discount rate shown for comparison as this was published by PNX. RCR uses an 8% post-tax discount rate.
Regional Gold Exploration The Burnside, Moline and Chessman Prospects were acquired as part of the Kirkland Lake (Newmarket) deals mentioned on p3 and p9 of this report. PNX recently completed a review of Burnside and identified ‘multiple high priority gold targets’, separate from Fountain Head, each having the potential to host gold mineralisation.
Regional exploration at Burnside took place between the 1980s and early 2000s with the target of high grade oxide gold deposits at surface, in an environment of low gold prices. Various gold anomalies and targets identified during that period were not followed up and now present opportunity for PNX.
A review of the large database including aeromagnetic data, 36,000 drill holes, 424 costeans, and 30,000 surface geochemical samples has been completed. The priority gold targets are typically characterised by strong surface geochemical anomalism and drilled bedrock mineralisation. Targets identified include:
The Medusa gold target which lies within the central portion of Burnside and is characterised by a large surface (700m x 600m area) gold and arsenic soil anomaly, and rock chip values up to 2.56g/t gold.
Initial reconnaissance drill testing of the structure undertaken in 1996 returned encouraging near-surface intercepts, including: 2m @ 1.83g/t gold from 26m in MEDR0001, and 3m @ 1.19g/t gold from 9m in MDR0008.
The mineralisation, which occurs within a zone of quartz veining and shearing, has been intersected over a 600m strike length and remains open in all directions. Significantly the original surface geochemical anomaly extends well beyond the limits of drilling and interpretation of magnetic data suggests that there are multiple parallel NE trending fault zones running through the area which have never been drill tested.
Cookies Corner which is located on a NE trending fault approximately 3km to the NNE of the historic Goodall deposit where Western Mining Corporation mined 4.1Mt @ 1.99 g/t gold (228koz contained gold) from 1988 to 1992. An 800m long x 300m wide gold in soil anomaly has been defined that overlies an area of outcropping gossanous quartz veins.
Drilling by PNX in late 2018 intersected gold mineralised quartz veining over a 400m strike, which remains open in all directions (Figure 11). Intercepts reported at the time included 11m @ 1.13 g/t Au from 75m in CCRC023, and 6m @ 1.82 g/t Au from 133m in CCRC003, and 4m @ 2.86 g/t Au from 35m in CCRC017.
All these areas show potential for later incorporation into JORC (2012) Resources, subject to further drilling being able to demonstrate continuity to enable calculation of a resource.
Key Parameter Unit Base Case Expanded Case
Gold Price US$/oz 1,854 1,854
AUD/USD $ 0.77 0.77
Mined Inventory Assumed Mt 3.7Mt @ 1.44g/t Au 5.4Mt @ 1.56g/t Au
Source: RCR estimates 29 January 2021. Post tax NPV quoted * Includes anticipated resource growth based on Glencoe acquisition and additional regional exploration potential. For Hayes Creek Project, anticipated recovery/payability taken into account in AuEq resource based on spot prices 29 January 2021 (US$1854/oz Au, US$28/oz Ag, AUD/USD 0.77, zinc US$2565/t). Gold equivalent grade for other metals reduced by anticipated recoveries at Hayes Creek: 80% Zn, 77% Ag, 58% Cu/Pb (60% Au). Fountain Head Gold Mine assumed gold recovery 93%. Note RCR production assumptions are conceptual and may differ from previously announced mining plans of PNX. Current JORC resource of 156koz at Fountain Head Gold Mine is anticipated to grow in 2021.
Source: Cases based on RCR conceptual valuations. Spot pricing 29 January 2021. Refer to Table2, p12 and Table 3 above for assumptions of RCR model for expanded case at Fountain Head Gold Mine.
Figure 13) Gold development companies, EV/oz (JORC, 2012)
Source: RCR estimates. Pricing at as 29 January 2021 (US$1854/oz Au, US$28/oz Ag, AUD/USD 0.77). PNX AuEq assumes 77% Ag recovery at Hayes Creek, excludes other metals.
Valuation Method Hayes Creek Fountain Head Exploration upside
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Recommendation Structure: Buy: Bankable project/s. Potential for returns in excess of 10%. Positive market or company driven valuation catalysts anticipated with a 12 month timeframe. Speculative Buy: Non/pre-bankable project/s, money at increased risk. Positive market or company driven valuation catalysts anticipated within a 12 month timeframe. Potential for large swings in valuation, shares expected to be volatile with possible returns, or losses, in excess of 20%. Hold: Shares expected to perform in line with relevant peer group within a 6 to 12 month timeframe. Positive market or company driven valuation catalysts anticipated longer term.
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