| | | Good Morning / Evening, today we focus on the Pilbara and gold, rather than the usual iron ore guff. If there is one thing a gold rush does, no matter what is reality and what is hype, it does prompt a lot of exploration activity. Sometimes the real discoveries emerge long after an area ceases to be the latest hot play. This appears to be the case in the Pilbara, with De Grey Mining (DEG, Mcap US$0.7B) announcing a significant new discovery at Hemi long after the conglomerate-hosted gold craze of 2017 is but a distant memory. So, for gold the Pilbara is a region where fortunes can be made (DEG shooting from 5¢ to 90¢ in 2020) but also lost such as the Millennium Minerals collapse late last year. In DEG's case does the prospectivity justify the price? | | | | | | | Pilbara Gold | | | Novo's (NVO, Mcap US$0.5B) discovery of gold in conglomerates at Comet Well in the East Pilbara and its famous 2017 live stream to the Denver Gold Forum of metal detecting nuggets at site, drove share prices for Pilbara participants with a sniff of conglomerate through the roof. While many would think the hype turned into a fizzle, without any eminently economic conglomerate-gold projects moving to development in the years since, many with land holdings in the region used the opportunity to raise capital while the feeding frenzy lasted.
While having conglomerate-gold potential across its tenements, De Grey's primary focus was on gold potential within a sheared Achaean-aged granite/greenstone belt, consolidating a strategic landholding over a 200km shear zone known as the Mallina Gold project. Through 2019, continued exploration highlighted the potential of intrusive-related mineralisation leading to the Hemi discovery in late 2019. It also well located and benefits from significant regional infrastructure.
| | | | | |  | | | | Source: Global Mining Research | | | | | | | | | | | | Hemi looks to be a game changer. A discovery hole in Dec-2019 of 43m at 3.7g/t from 36m, was supported by confirmatory drilling results released in Feb-2020 (including 49m at 3.7g/t) driving share price of DEG from A$0.05/share in early January to the current price of ~A$0.95/share, giving DEG a market cap of just over A$1B. On the back of the good results, DEG raised A$31M in Apr-2020.
Does it justify the price? Current resources at the Mallina Gold Project total 2.2Moz at 1.8g/t. Importantly, this is before a maiden resource for Hemi has been reported. Drill results from Hemi show gold in three discrete zones – Crow, Aquila, and Brolga. There appears to be both open cut and underground potential, with both shallow bulk intersections of good grade (e.g. 97m at 3.2g/t from 35m), as well as deeper high-grade intersections (45m at 8.1g/t from 111m).
It's worth noting this is still early stage and there is a lot of work to be done at Hemi; drilling to date is widely spaced on roughly 80m centres and more evaluation has to be done on metallurgy (e.g. is there refractory gold). Very broadly, there appears the potential for +/- 2Moz of mineral inventory at ~1.9g/t with mineralisation unconstrained.
Certainly, on defined resources DEG is currently trading at close to US$400/oz of resources and the most expensive of the peer group below. However, on a prospective basis with Hemi this could be closer to ~US$200/oz and therefore more in line with the average of the peer group at US$180/oz. That said, this is still way above the give away price NST sold the Ashburton for and its 1.6Moz. Also there's a number of producers trading sub US$100/oz.
| | | | | | | EV Per Resource Ounce Producers Vs. Developers (US$/oz, rhs g/t) | | | |  | | | | Source: Global Mining Research | | | | | | | | | | | | | It is easy to forget that the Pilbara, more often associated with iron ore, has a long history with gold, both in early gold rushes and more recently with active mines at Paulsens and Nullagine. DEG with its +1,000% return in 2020 is certainly putting Pilbara gold back on the map. | | | |
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