21-Feb-2019 [IMG] De Grey Mining Ltd. Bigger Throughput Pushes...

21-Feb-2019

De Grey Mining Ltd.


Bigger Throughput Pushes Project Over 100k oz pa
Impact: Positive
De Grey announced an increase in the scale of the its Pilbara Gold Project from 1Mtpa to 2Mtpa plant throughput based on 2018 exploration success and improved metallurgy. As well, the company announced that it expects the resource to grow to 2Moz by year-end. Both these updates support our view that De Grey is continuing to improve the scale and economics of its Pilbara project, which we expect is likely to start attracting the interest of mid-tier gold miners in Australia.

Highlights:

• +100koz pa potential. Following a recent resource update that saw an increase in resources from 1.2 to 1.4Moz Au plus the recovery improvements announced last week, the company has announced that plans to advance the project around a 2Mtpa plant, which based on our estimates should translate to +100koz pa production. In our view, this is an important threshold, is the project is now of a size that matters to mid-tier producers, making De Grey a more attractive takeout target.
• Resource expected to be ~2Moz by year end. De Grey reiterated the company’s corporate goals of building a 3Moz resource in the Pilbara with the first step of defining 2Moz by year-end (an additional 600koz). With two drill rigs already drilling both open pit and underground targets at Withnell, to be followed by Toweranna, we expect these 2019 goals to be easily achievable at these two deposits alone. We highlight that step-out drilling is also planned for Malina and Mt, Berghaus.
• More news coming. Having recently announced higher expected recoveries and now doubling the expected throughput, we see 2019 as a transformative year for the company as it continues to highlight the projects potential. Along with ongoing drill results, we expect further updates on capital costs, operating costs and an expected mine plan to further support this theory.

Valuation:
Valuation does not reflect Pilbara Gold projects potential. Our preliminary estimate for De Grey’s hard rock assets are worth at least A$0.30/sh. These estimates do not account for the optionality the company has with its conglomerate targets. We believe that as the company demonstrates the exploration upside and scale potential of PGP, it is likely to become a takeout target for larger peers. Upcoming catalysts: 1) Ongoing exploration results and 2) Project development updates.