MGV: Interview with Rob Waugh

Interview with Rob Waugh Managing Director of Musgrave Minerals
Date: 2 August, 2017

OGW: Rob you have recently announced a very encouraging upgraded mineral resource of 352,000 ounces at Lena and Break of Day. What’s the plan going forward, you have described the resources the tip of the iceberg, do you intend to focus on delineating a larger ore body or mine what you have and grow the resource as you go?

RW: There are two strings to the bow really. The first is this is definitely the tip of the iceberg, there is a considerable opportunity to grow the Break of Day resource especially to the south and to expand the Lena resource.  Both are definitely open down plunge and along strike. But also there is a lot of opportunity within the Moyagee belt to discover new resources. We are intending to do geochemical surveys as we move forward to define additional targets that look just as good as Break of Day.

The new Louise target 600 metres south of Break of Day is an example of another high priority gold target that looks like an analogue for Break of Day.
The expectation is for the Company to define multiple new gold targets in the belt. That gives us a lot of optimism going forward that we will be able to build the resource base and ideally eventually get to the position where we will have 500,000 ozs and from there up to 1 million ounces over a period of time.
The other side of the coin is what value does the current resource hold. So what we want to do and we will start in the next couple of months is optimising the mineralisation from a mining perspective to work out exactly what the stripping ratio is likely to be from an open cut and what components of the underground resource  we will be able to effectively mine.

That will help us evaluate what the costs of extraction are likely to be and this is work we need to do prior to any more studies. That will give us a feel for what the value currently is and what we have to do to move forward, whether we push ahead with the current resource status or whether we need to build the resource.

OGW: The immediate drilling program is to test the southern extension of Break of Day, how many holes do you intend to drill and how long is the program likely to take?

RW: We will start with a relatively modest program of about 2,500 metres in the order of a dozen holes in the southern extension of Break of Day.

We will continue to do smallish step outs of 25 metres and try and hit the zone and follow the trends  of the high grade mineralisation. If we continue to hit mineralisation we will continue to drill.
We also want to be able to test a couple of new targets right at the end of this program, Including the Louise target,  and that will add some additional holes and some additional metres. We really want to focus this program on extensional drilling and test a couple of new targets rather than infill drilling.

OGW: You have mentioned in a recent BRR interview an 8 kms long trend, could you expand on that a little bit and for the uninitiated what exactly does strike length mean?
RW: We have an 8 kms long trend and when we talk about strike length we talk about the potential length of mineralisation. We have a zone that is 8 kms long that is anomalous in gold. It is pretty highly anomalous in that its >0.1 g/t in shallow regolith drilling, so just the upper clay zone.  What we saw at Break of Day was that most of the gold was present below the shallow drilling and down in the fresh rock.
So what we have is an 8 kms long trend  with lots of gold anomalies and lots of broad spaced shallow drilling over it. Some of the drill traverses only go down 30 metres and are some 400 metres apart. Break of  Day had  a strike length of about 350 metres so it could easily fit between the current historical drill traverses.
So we have put it all together and compiled a picture that at least goes back over the last 35 years. And there are different  levels of intensity of drilling. Most of the trend hasn’t had much drilling  at all whereas some areas, for example where we have defined Lena and Break of Day have considerably more drilling.
We think there are multiple deposits to be found in this 8 km stretch and it is just a matter of being able to define your targets closely enough down to a zone that might be the strike length of an ore body 300 metres or 400 metres and then drill test those targets with deeper drilling which might be RC or diamond drilling.
OGW: Does the 8kms trend include the lake to the north?

RW: No the 8kms zone goes up to the edge of the lake and then we have another 12kms zone on a prospective shear zone which will be the continuation of the Break of Day and Lena shears. This zone has not  had any significantly drilling at all, virtually nothing really. That will be another trend to test to see if it hosts more gold deposits.

OGW: Rob explain a shear zone to us.

RW: A shear zone is a zone of weakness, effectively like a fault and you have a lot of fluid come up that zone of weakness, super heated fluid pushing up millions of years ago and the gold is within that fluid and when it cools the fluid cystalises as a quartz vein and the gold precipitates, then millions of years later we discover gold deposits.

OGW: Are the current lodes at Lena and Break of Day the Twilight and Velvet lodes close to the tenement boundary and does this present a problem when developing the resource?

RW: The closest Lena and Break of Day get to the mining lease boundary is about 100 metres and that’s at surface and then they trend away from the boundary at depth. In any event the next lease or tenement across is still Musgrave Mineral’s tenement. So there is no issue going forward as far as development or ownership goes. One is a mining lease that hosts Lena and Break of Day the adjacent tenement is an exploration lease, that could be converted into a mining licence if there was gold out there that we wanted to mine.

OGW: Are there any mines in the area that commenced mining on the same or similar resource numbers?

RW: There are two, the one most people are aware of is Doray Mineral’s Andy Well discovery back in 2010. There were a couple of key milestones for Doray. They made the discovery in early 2010 and by the end of that year they had defined a resource of a 162,000 ozs to a depth of about 250 metres. At that point they raised $21 million. They went on to find more resources , some 332,000 ozs of gold which was about 800,000 tonnes at 12.5 gms. The mineralisation was defined down to about 400 metres depth.
Musgrave’s resource is currently down only about 300 metres. The expectation is that the mineralisation we have discovered will continue on at depth but we need to drill deeper.
The other mine in the area of lower grade but currently operating is Westgold’s Comet Mine. That’s 2.3 million tonnes at 3.9 gms per tonne,  about 300,000 ozs and is an underground mine.
That’s a modest grade but they are currently mining that and developing it in an underground operation. It’s about 6 kms south of the recently acquired Tuckabianna processing plant. So that’s another mine that is roughly a similar size to Break of Day.

OGW: Mentioning Westgold reminds me that you have pre-empted them on the last 20% of the available Silver Lake tenements. Will you have to raise more cash to fund the $1.5 million purchase and undertake the August drilling program.

RW:  Musgrave now hold 100% of all the resources and core tenure for the Project. We have enough cash at the moment to meet our commitments. The deal has now been finalised and we have enough cash to get us through the drilling program that starts next week (week beginning 7 August ed.).
OGW: If and when a decision is taken to develop the mine how will the ore be treated. We know there are facilities in the region for toll treating for example at Tuccabianna. Is toll treating the best option or would a small stand alone plant be viable?

RW: We are sort of in that position at the moment where all options are on the table. If we continue to grow the resource which we think we can, then we are heading towards what will more likely be a stand-alone operation. Toll treatment, profit sharing, even the potential to lease an existing  plant in the district is possible particularly with Doray putting Andy Well on care and maintenance.

OGW: You have done the metallurgy on Lena and Break of Day and it has delivered some encouraging results in that your processing looks to be fairly straight toward. Is that my understanding?

RW: Yes  the recoveries we have been getting from Break of Day and Lena have been very good around 95 to 96% with quite a good gravity component within that. Break of Day had some 84% gravity recovery and the oxide and transitional material or the weathered zone at Lena which will be the open cut material has been seeing a 34 to 55% recovery. We currently have a fresh sample from Lena getting more work done and the trend we are seeing is that the recent fresher material has a stronger gravity recovery.
The benefits of having a strong gravity recovery is that there are less costs associated with the processing component. It is a cheaper method in getting the gold out as there are no reagent costs. It means the ore is likely to be sought after in the district. There is nothing deleterious in it that we have identified so it won’t cause any problem putting it into an existing mill or in a stand alone plant if we decide to build one.
OGW: Rob are there still assay results due from the recently completed base metal drilling program?

RW: All our drilling results have now been reported. The base metals side of our exploration is another string in our bow. We have seen some good copper and zinc values coming through and that really dovetails into us owning 100% of the project. We now have 100% ownership of the Hollandaire copper deposit sitting there at >50,000 tonnes of copper metal with gold credits.  For us to find additional resources on the base metal side is  a value add for the company.

OGW: Rob is the Board concerned at all at the possibility of some corporate activity further down the track in the form of a merger or takeover?

RW: There is no evidence of such activity at this stage so it is a bit of a moot point but you can’t really predict what is likely to happen in the future. What we do want to see is that shareholders get true value for their position in Musgrave.
So if any potential eventuates we would want to see value represented in that. We think the company is significantly under valued at the moment and we want to be able to express to the market that what we have is the tip of the iceberg, that we can grow the size of the resources we have and that there is significant value in these resources.

OGW: I recently saw a chart of the share price of a typical junior explorer as it moved from exploration to production. The share price ran hard on exploration success then slowed and retreated as the junior moved into the  development evaluation phase only to pick up again as it neared production. Does this partly to explain the movement in Musgrave’s share price?
RW:  Yes it is an interesting dynamic isn’t it. There is quite a bit of buying on the speculative side where we are effectively positioned in the market. Investors want to see what the upside potential might be within the project and the company and that’s why we need to maintain our exploration because we are explorers and through that exploration we have grown the business.
We are showing people that not only do we have these resources and targets but also that they are quality targets as we continue to discover more gold. We do that and at the same time we look at the development of the existing resources and get a better understanding of how we might maximise their value through development.
On the exploration side what we would really like to be able to do is find another Great Fingall which is only 30 kms north of us. That was a deposit of 2 million ozs at over 20 gms. If we could find another one of those it would really be a company maker. There is also the six million oz Hill 50 gold mine only 30 kms to the south. So we think there are some big deposits in the district that have ten to twenty year lives still waiting to be found.