De Grey Mining Limited (ASX:DEG) is completing a pre-feasibility study for its structural gold project in the Pilbara region of WA, whilst continuing to drill to add to its existing 1.2 million ounce resource.
The company’s lead project is titled the Pilbara Gold Project, and its name reflects its location in prime Pilbara Gold Rush country.
Conglomerates in the mix
The project is east of Novo Resources Corp’s (CVE:NVO) (FRA:1NO) (OTCMKTS:NSRPF) land tenure and contains its own watermelon-seed-style coarse-grained gold similar to what the Canadian company found near Karratha in Western Australia’s northwest.
De Grey executive chairman Simon Lill spoke to Proactive Investors and emphasised the company’s point of difference to other players in the region — it has the “X-factor” of conglomerate gold but also traditional structural shear-zone-hosted gold resources.
Lill said: “Other companies in the region only have the conglomerates, they don’t have 1.2 million ounces — and growing — in structural gold.”
The executive chairman highlighted the company had more than 200 kilometres in shear zones that carried mineralisation.
Lill also noted that the project’s existing structural gold resources are more than 50% measured and indicated, a value he estimates at $20 to $30 million, given the savings the company can make on resource upgrade drilling.
The mineralisation is found on more than 1,500 square kilometres De Grey holds in the Pilbara region.
Lill said: “We’ve got more than 200 kilometres in shear zones that are carrying mineralisation, so all of these deposits and resources that we’ve got are along (the) shear zones.”
Less than 10% of the shears have been drill-tested, with very few holes found below a 150-metre depth.
De Grey’s land tenure in the Pilbara extends over more than 1,500 square kilometres.
Historically, only the outcrops were drilled, so there are gaps in defining resources along the shear.
Orphan holes in between existing deposits have had stand-out results, such as Edkins in between the Amanda and Wingina deposits with 2 metres at 43.2 g/t and 3m at 29.3 g/t.
Lill said: “There is so much exploration potential in what we’re doing.”
Geologist Andy Beckwith has joined De Grey as a technical executive and shareholder and has conveyed his confidence in the quality of the Pilbara Gold Project to the market.
Beckwith said in July: “The more drilling we do, the more gold we find.”
A 0.2 gram gold nugget was found on a bulldozer track that exposed a small section of outcropping boulder conglomerate.
Pre-feasibility study pending
Drilling at the project undertaken over the past few months will be incorporated into a pending resource upgrade that will help inform the prefeasibility study for the project.
De Grey is completing an economic assessment for the wider pre-feasibility study expected in the December quarter.
De Grey’s executive chairman told Proactive Investors there were two ways the company could proceed.
Lill said: “At the moment our next four months is prefeasibility and ongoing drilling. The prefeasibility study will then provide a decision point.
“The prefeasibility, we’re comfortable, will show a 7-plus year mine life and a million tonnes per annum to produce greater than 60,000 ounces per annum.”
He acknowledged that route would involve a financing process and building a plant.
Conglomerate beds were found at Steel Well Prospect.
Lill said: “The competing theory is that we’ve got plenty of room to explore … we’ve got a very experienced and competent geological team that know the area — we are set up to explore and we have a lot of opportunity — that might be a better way for us to go for a while.”
A number of large resources companies made it clear during this year’s Diggers and Dealers Mining Forum they were on the hunt for new projects.
High-quality resources, such as De Grey’s mostly measured and indicated resource, could look good on a buyer’s statement.
The company’s existing shareholder base includes supportive major shareholder Kirkland Lake Gold Ltd (ASX:KLA) (TSE:KL) (NYSE:KL) (FRA:NGDA) which holds 9.2% and neighbour DGO Gold Limited, which has a 6.9% stake controlled by explorer and company investor Eduard Eshuys.
De Grey’s directors and management hold a collective 3.9% stake.
An investor perspective
DGO executive chairman Ed Eshuys told Proactive Investors that the company viewed De Grey as an “outstanding investment opportunity” due to its enormous prospectivity and relatively low cost of adding ounces.
Geologist Eshuys said: “DGO has invested in De Grey because in our view it has an outstanding package of land that has a 200-kilometre strike length and has been very lightly explored … both along strike and at depth.
“If you look at the De Grey presentations you can see that apart from having 200 kilometres of strike, they already have some 40 gold anomalies that remain to be followed up (and) 11 areas where there’s gold known, where’s there’s been gold drilling.
“When we compare that to similar companies to De Grey and similar land packages, the land package of De Grey is just far ahead of any opportunity we’ve seen in Western Australia.”
The corporate investor said DGO’s view was the reason the opportunity had been ignored was because it was in WA’s Pilbara region and not Australia’s eastern goldfields.
Eshuys said: “The prospectivity is such that it is enormous potential.”
He pointed to De Grey’s comparative low of cost of discoveries, as measured in exploration dollars per ounce.
Eshuys said: “We’ve done very detailed analysis of the prospectivity and the cost of outlining that prospectivity in terms of the number of ounces that may be discovered and we’ve looked at that and compared that with other companies have reported their exploration costs to be.
“We think that on the De Grey land we should be able to find gold at something like $10 an ounce.”
DGO’s estimate of De Grey’s cost of finding resources is $15 less an ounce than the average costs estimated in a recent industry review.