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Phoenix Gold builds near term cash flow potential with robust economics for Blue Funnel

Published: 12:23 28 May 2012 AEST

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Phoenix Gold (ASX: PXG) is enhancing its near term cash flow prospects with the delivery of strong financial returns from a recent Mining Study at its Blue Funnel Gold Project in the Eastern Goldfields region of Western Australia, which is being assessed for early development.

This marks the second project being considered for early development by Phoenix, with the Catherwood Project the first.

Blue Funnel could deliver as much as A$8.9 million in net cash, based on a gold price of around $1,600 per ounce, assuming an open cut mining operation producing 150,300 tonnes at 3.49 grams per tonne (g/t) for 16,877 ounces of contained gold.

Further economic upside is that the ore would be treated by a third party mill through a toll treatment agreement, which reduces the capital cost requirement of the project. 

The Mining Study also demonstrated high average metallurgical recoveries of around 94% with conventional processing.

Jon Price, managing director, commented on the robust economics of the project:

“The Blue Funnel project now joins Catherwood as the first two small scale mines to be developed by Phoenix to generate cash and grow the Resource base and work toward a larger scale longer term production profile.

“Both mines have robust economics, even when factoring in contract mining rates and toll treatment costs, and have very low start-up capital requirements.”

The 95% owned Blue Funnel project currently hosts a Resource of 453,000 tonnes at 2.91g/t for 42,480 gold ounces.

Just over 28,000 ounces of that is in the higher confidence Indicated category.

The current Resource sits below the existing Blue Funnel pit which produced 48,000 ounces at 4.5g/t between 1985 and 1993. 

The pit was not completed and recent work has demonstrated the potential to mine the remaining ore in the pit and to complete a small cut back to the south.

Further drilling to improve the potential of the southern cutback was completed in April delivering high grade, near surface intersections of 5 metres at 4.45g/t gold from 32 metres, 3 metres at 4.91g/t gold from 22 metres and 5 metres at 2.41g/t gold from 24 metres. 

Phoenix is continuing deeper drilling along the mineralised corridor targeting large gold systems at depth. 


Catherwood

Earlier this month Phoenix discovered broad widths and improved grades of gold near surface and outside of the current resource at Catherwood which potentially enhances the economics of the project.

Highlight intersections from additional drilling in the supergene zone included 25 metres at 4.14g/t gold from 11 metres, 17 metres at 3.66g/t gold from 16 metres and 12 metres at 4.18g/t gold from 20 metres.

The results of the Bankable Feasibility Study, completed in late 2011, demonstrated a two stage cut back on the existing Catherwood open cut produced 27,000 ounces from mining 314,000 tonnes of ore at an average grade of 2.7g/t. 

Assuming a gold price of A$1,500 and that the ore is processed through a treatment facility owned by Phoenix, the BFS revealed the Catherwood project could generate A$15 million in free cash. 

Phoenix expects to make a final decision on the project’s development in the September quarter.

The company is also now able to begin mining at Catherwood following the granting of environmental approval.


Analysis 


Phoenix Gold has aggressively grown its gold resource base to 1.68 million ounces since listing on the ASX in December 2010, a 182% increase from initial acquisition.

The company owns extensive landholdings on the highly prolific Zuleika and Kunanalling shear zones located to the northwest of Kalgoorlie in Western Australia and is targeting continuous gold production in 2012.

Phoenix's EV/Resource valuation of less than $13 per gold ounce appears slight compared to a peer average which could be considered around $50.
 
The company is targeting a Resource of 2.5 million gold ounces by the end of 2012, with a Reserve goal of 500,000 gold ounces.


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