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De Grey Mining : September 2020 Review [ASX: DEG]

degrey mining limited gold mining company review

De Grey Mining (‘DEG’) is a Western Australia-based gold explorer in the world renowned Pilbara, seeking to develop its Mallina Gold Project (‘MGP’) located 60 km south of Port Headland. MGP is close to other significant mining infrastructure, including railways, gas and electricity transmission facilities, the Great Northern Highway and a qualified workforce. It is this extensive existing infrastructure in close proximity to the project that within 3 or 4 years could transform DEG into a major Australian gold producer.

The MGP landholding covers 1500 square kilometres, including 200 kilometres of mineralised shears. Being located in the Pilbara, which is best known for its iron ore facilities, limited gold exploration has occurred in this region to date. This is about to change.

The company’s existing resource base is 2.2 million oz at 1.8g/t.

But the recently discovered Hemi tenements are what has grabbed the market’s attention recently. Discovered in late 2019, drilling is currently underway with 6 rigs at this large scale, high value, near surface prospect, located just 15 km from the Great Northern Highway. The Hemi discovery is a new form of gold mineralisation not previously encountered in the Pilbara, which lends itself to open pit mining. It is this unique geology in the region that has piqued the interest of astute resource investors and research analysts. Initial drill testing results in December 2019 were 43m at 3.7g/t Au from 36m, and 25m at 2.7g/t Au from 32m, spaced 640m apart. These results suggest the potential for large structurally controlled gold deposits within the basin. Further drilling was undertaken in early 2020, defining three major gold zones – Brolga and Aquila and Crow. All three zones present the same type of intrusion related mineralisation. The overall footprint of Hemi continues to grow, now approximately 2.5km north-south and 2km east-west.

Importantly, replenishable fresh groundwater in ample supply has been observed during drilling, in support of resource processing capability. The ground is primarily flat sand plain topography, making it ideal for mining. Experienced market observers have noted that Hemi has the potential to delineate a 3-4 million oz resource at about 1.5g/t within 12-18 months, although DEG insiders have publicly stated that their goal for the greater Hemi project is more than 5 million resource oz over time, with more than half of this in the Indicated category. This has the potential to establish DEG as a major Australian gold producer by 2025.

The board have the blend of specialist capabilities needed for DEG to realise on its shareholder value accretion potential. Simon Lill, executive chairman, has 25 years of experience in stockbroking, capital raising and executive management. The managing director, Glenn Jardine, is a senior mining executive with direct experience growing resource companies from early stage exploration through to multi-operation entities. This includes taking projects through feasibility studies, equity funding, debt financing, project development and operations. His commodity experience includes precious metals, base metals and bulk commodities across underground and open pit operations, using a variety of processing methods. Projects which he has led and developed have received Australian State and Federal recognition for environmental best practice and health and safety and human resources systems.

A pre-production miner like DEG is reliant on equity and debt markets to fund its development, and is also subject to bankable feasibility studies. The company has approximately $30 million cash, with no debt, and so can fund its exploration activities to June 2023 to further define the gold zones.

 Furthermore, MGP being 45 minutes from Port Headland and other essential infrastructure, provides the project with development advantages not often seen for projects of similar potential. DEG believes that the project can support a 7 million t/pa processing facility, requiring capex of up to $800 million, for a mine life of 12 years, with production averaging 300,000oz pa.    

DEG successfully raised $31.2m in April 2020 and further equity raisings will be required to monetise its existing resource and that is where future equity investor interest is likely to arise.

Astute investors will continue to analyse the release of updates from development and feasibility studies evaluating the technical and financial viability of gold production at the MGP. Measured and Indicated resource categories and drilling from the Hemi discovery is near-surface, consistent and continuous.

These factors make it a simpler proposition for bankers, investors and other external parties to assess, cheaper to drill out to Reserve status and quicker to develop – lowering the investment risk for capital providers and increasing the likelihood that a potential joint venture partner may step up and support the financing solution needed for DEG to become a major Australian gold producer.

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