Phoenix Gold's (ASX:PXG) shares are expected to firm today after the company delivered broad high-grade drilling results from Castle Hill Stage 2.
The wholly-owned Castle Hill gold project has the potential to become a multi-million ounce gold mine, which is located in an infrastructure rich region near Kalgoorlie in Western Australia.
Latest highlights from Phase 1 of the resource development and extensional drill program include:
- 8 metres at 18.7g/t gold from 72 metres;
- 3 metres at 40.2g/t gold from 16 metres;
- 2 metres at 55.8g/t gold from 76 metres; and
- 3 metres at 26.5g/t gold from 74 metres.
The importance of the results is that they improve the geological confidence while extending mineralisation to the south and east.
The strong news flow will remain for Phoenix, with the company approaching the commencement of mining at Castle Hill in the September quarter, along with an updated Resource and Reserve expected early in the period.
Jon Price, managing director, commented: “Castle Hill Stage 2 continues to deliver excellent results and we now have improved geological confidence and considerable upside potential along strike as we move in to the development phase of this exciting new mining precinct.
“The entire Castle Hill gold camp continues to grow along strike and at depth and, together with our Kundana North gold project, will be the focus for ongoing resource development and exploration in the coming year.
"Phoenix is well funded to deliver further resource growth and staged development of our core project areas and we look forward to moving into production in coming months."
Staged development strategy
Phoenix’s staged development strategy involves the use of spare milling capacity in the region to enable early net cash flow generation.
This also allows it to start production at a more modest capital cost while growing its mining inventory and delivering cash flow to grow the business over time.
Under this strategy, mining will commence in the September 2014 quarter and deliver 600,000 - 800,000 tonnes of ore annually for haulage and treatment at FMR Investments’ Greenfields processing plant in Coolgardie.
Phoenix ore will be processed in campaigns with no third party blending with payment made on an open book, cost plus basis.
The mill, which had previously being used by the company, will be operated under technical direction of Phoenix.
Mining and milling of the company’s smaller scale projects under the two year agreement with FMR is expected to deliver a 25-30% operating margin over a 2 year period at $1350/oz gold price.
Analysis
Today's high-grade and good width results would indicate more tonnage and ounces can be added along strike, adding up to a regionally burgeoning gold bounty.
There is also substantial potential at depth, with the latest results from near-surface to around 80 metres.
This is expected to add to the Resources of 3.8 million gold ounces, and Reserves of 1.16 million gold ounces.
The benefit of a staged development strategy is that it reduces up-front CAPEX, and minimises dilution and financial pressures, by avoiding the need to raise significant amounts of debt or equity.
This type of development leads to early production, allowing near-term positive cash flow.
Phoenix is well-funded with $12.9 million cash at bank after completion of the Entitlement Offer.
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