Argonaut sees value in Apollo and a golden opportunity at Lake Rebecca

Special Report: Argonaut Securities says Apollo Consolidated’s Lake Rebecca Gold Project in the West Australian goldfields is “growing in scale and confidence” while the company continues to trade at an undemanding valuation based on Lake Rebecca’s current resource.

Apollo (ASX: AOP) is in the midst of a significant drilling program at Lake Rebecca as it seeks to build on the maiden pit-constrained 1.035 million-ounce indicated and inferred resource announced in February and convert more of those resource ounces to the higher confidence indicated and measured categories.

Following the release of the latest round of assay results late last month, Argonaut analyst Matthew Keane wrote in a research note that Apollo was on the right track, with the drilling campaign “continuing to increase the confidence and extent of known deposits and define new mineralisation such as the recent Cleo discovery”.

The three deposits that currently contribute to Lake Rebecca resource are Rebecca, which contains 775,000 indicated and inferred ounces; Duchess, which contains 180,000 inferred ounces; and Duke, which contains 80,000 inferred ounces.

Among the results just received were a batch from infill and step-out drilling at Duke that confirmed the continuity of broad 1.1-1.9 g/t gold mineralisation over a ~300m strike length to a depth of 150m below surface. Better intercepts included 36m at 1.89 g/t Au from 175m and 41m at 1.16 g/t Au from 130m.

“The current inferred resource of 80koz @ 1.1 g/t [at Duke] should see some improvement in grade, depth extent and confidence level upon the next resource update due in late 2020,” Keane said in his note.

“Under a mining scenario, we can see this being a geometrically simple satellite open pit to the main Rebecca deposit.”

The drilling update also included results from diamond “tails” at Rebecca testing the Laura and Maddy mineralised structures in positions below the existing resource boundary that showed there is still plenty of potential to grow the main deposit.

Drilling is continuing at all three deposits and at key exploration targets such as Cleo, where results such as 38m at 2.00 g/t Au, 5m at 2.75 g/t Au and 2m at 9.39 g/t Au point to excellent potential for a new deposit to take shape.

Moving towards development studies

“With the growing resource confidence, Argonaut sees Rebecca transitioning into the feasibility stage,” Keane said.

“At an 80% resource to reserve conversion (based on the current resource), a ~2Mtpa processing facility could produce 70-80kozpa for 7-8 years (assuming 1.2 g/t head grade and ~94% recoveries).”

At a share price of 33c, Apollo is trading at an enterprise value per resource ounce of $70, which Keane described as “undemanding”.

Argonaut’s valuation of Lake Rebecca, which is the basis for its 46c price target and “speculative buy” recommendation on the company, applies an enterprise value per resource ounce multiple of $85.

Apollo has $21 million in cash following the sale of its minority interests in two Cote d’Ivoire gold assets and a $10 million capital raising earlier in the year.

The company also has a potential future revenue stream from its royalty over Toronto-listed Roxgold’s Seguela Gold Project in Cote d’Ivoire, which Argonaut values at $11 million.

This story was developed in collaboration with Apollo Consolidated, a Stockhead advertiser at the time of publishing.

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.