Why De Grey looks like a good bet among Pilbara gold explorers
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If you’re into Pilbara gold stocks, De Grey has a better story to tell than most, writes Barry FitzGerald in his weekly Garimpeiro column
The way De Grey Mining executive chairman Simon Lill sees it, the company is the de-risked exposure for investors to the unfolding Pilbara gold-in-conglomerates story.
He has got a point, given that unlike most of its peers, De Grey (ASX:DEG) has a separate growth story if the conglomerate rush proves to be a flash in the pan.
The separate narrative comes from De Grey’s conventional 1.2 million ounce shear-hosted gold resource which is being advanced towards development. It’s called the Pilbara gold project.
The Pilbara gold project represents the combination of the company’s Turner River project and the Indee project immediately to the west, with the latter secured in an option deal with Chinese interests in February last year.
De Grey is targeting approvals, funding, and construction in 2019, with initial open pit mining expected to underpin a longer lived mine from higher grade underground deposits.
Lill says the project “well and truly’’ supports De Grey’s $60 million market value.
A pre-feasibility study in to the open pit stage is due in the December quarter. In the meantime, there are 40 big untested gold-in-soil anomalies to test with the drill bit.
“And then we have the upside of what comes from the conglomerates,’’ Lill said.
What comes from last year’s Pilbara region conglomerate gold nuggets rush — triggered by Canada’s Novo Resources — remains to be seen.
The recovery of “watermelon seed shaped” gold nuggets using metal detectors from the regionally extensive conglomerate beds — and Novo’s suggestion that there were similarities with South Africa’s fabled Witwatersrand Basin — triggered a boomlet in ASX stocks with ground in the region.
De Grey was in the thick of things, with its shares reaching 38c. It has since settled back at 18c.
Novo got to $C8.83 on the Toronto venture exchange (TSXV:NVO) and is now back at $C4.86.
The shares of both are nevertheless edging up from their lows of earlier this year as a critical event for the Pilbara conglomerates story takes shape: the bulk testing of the conglomerate prospects to determine if they are economic propositions.
Novo is close to reporting results from its up-scaled bulk sampling program in a joint venture with ASX-listed Artemis at the Purdy’s Rewards prospect near Karratha.
It was up-scaled after results from a campaign of small bulk samples didn’t answer questions on the likely economics.
The results from Novo’s up-scaled bulk sampling will largely determine if the conglomerates story takes off again, or simply plods along.
De Grey itself is planning to bulk-sample its most advanced conglomerate prospects: Loudens Patch, Jarret Well and Steel Well.
At Loudens Patch, more than 200 gold nuggets associated with a conglomerate horizon have been recovered.
De Grey, too, will be hoping for exciting results from its bulk sampling.
But because its conventional gold project will involve the building of a centralised treatment plant, it is not reliant on shooting the lights out on the conglomerate side of things as most of its peers.
That is because it won’t technically need to establish a conglomerates resource to support the building of a treatment plant. It will already have one on the strength of the economics of the 1.2 million ounce conventional gold project.
And what’s more, the existence of the plant will raise the potential for the campaign mining and treatment of blocks conglomerate material where there has been a clear indication that are worth running through the mill, improving overall project economics in the process.
It gets back to Lill’s suggestion that De Grey presents as an each-way bet on the conglomerate story, courtesy of its conventional Pilbara gold project.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.