Scarsdale Equities Reiterates their buy rating for LION
This update by Scarsdale was put out a couple of weeks ago. Like many of us, they had expected faster development, but also like many of us, they see the value, the possible blue sky future, and know the mine is a-coming.
Lion One Metals Limited updates Tuvatu Gold Project development,
including contractor selection, awarding an underground mine contract and completing a financing decision. Drilling continues to infill, expand and step-out, increasing the definition of the high-grade gold resource.
We maintain our Buy rating. Tuvatu gold project profile: Lion One Metals Limited’s“Lion One”) 100% owned Tuvatu Gold Project is located only 17 kilometers from the Nadi International Airport, on the main island of Viti Levu, in Fiji. The project is in a caldera setting, along trend with the caldera-situated Vatukoula gold mine, which has produced 7 million ounces of gold in the last 82 years. The Tuvatu Gold Project has an Indicated resource of 1.1 Mt, grading 8.46 g/t, for 299,500 oz of gold; and an Inferred gold resource of 1.1 Mt, grading 9.7 g/t, for 468,000 ounces of gold, at a 3 g/t Au cutoff grade.
The PEA assumes modest capital costs and efficient mining of high-grade gold resources, resulting in significant cash flow, which may rapidly repay capital and fund mine development and additional exploration of prospective gold targets.
Summary of highlights for the first half of 2017:
•Received three competing bids for final EPC services for the Tuvatu processing plant and supporting infrastructure.
•Issued a tender for underground mine services to complete the majority of the decline and level development.
•Expanded project development and mine construction team.
•In process of concluding financial arrangements.
•Pending award of SPL 1412 exploration permit for balance of Navilawa Caldera.
We anticipate updates on selecting an EPC for project construction and underground mine services in the next 30 days, and additional drill results supporting conceptual near-term mining and stockpiling to support the mine plan.
Expansion and step-out drilling has the potential of expanding near and longer-term mining operations. While the award of SPL 1412 is now later than we expected, these activities may bring the selection process to conclusion.
We maintain our Buy rating and price target of C$1.40 per share. Thesis: The Tuvatu Gold Project is Possibly Fiji’s Next Long-lived Gold Mine We believe that Lion One Metals Limited is advancing the Tuvatu gold deposit to become Fiji’s next long-lived gold mine. The nearby Vatukoula gold mine (“Vatukoula”) in the last 80 years has produced 7 million ounces of gold.
We believe that Lion One’s planned Tuvatu gold mine (“Tuvatu”) may be superior to the Vatakoula for a number of reasons. Both projects share characteristic high grades of gold, but the widths of mineralized lodes at Tuvatu are over one meter as compared to narrower veins at Vatukoula. In addition, the angle of Tuvatu’s lodes are at a steeper angle amenable to the long-hole stoping method as opposed to Vatukoula’s shallower angle mineralized veins which are mined by the breast-stoping method.
A combination of these characteristics suggests that mining at Tuvatu may be more efficient than at Vatukoula, reducing mining dilution (handling waste rock) and with a more cost-effective mining technique. In addition, Vatukoula’s ore is understood to be refractory, requiring additional treatment in order to recover the gold, as opposed to Tuvatu which has better metallurgy, and may be recovered by a simple carbon-in-leach (CIL) process. We believe for these reasons that an operation at Tuvatu has the potential to be more profitable than operations at Vatukoula. We anticipate that the potential to expand the current resource estimate at Tuvatu may double as additional surface and underground drilling is completed over the life of the project.
Should Lion One secure SPL 1412 for the exploration of the Navilawa caldera, we believe that Tuvatu may have the opportunity to expand its mining activities, and indeed have the potential to become Fiji’s next long-lived mine.
Update on Progress of Development in the First Half of 2017
Lion One has received three competing bids for engineering, procurement and construction (EPC) services for the Tuvatu processing facility. This is described as a 210,000 tpa CIL gold processing facility. This includes customary surface infrastructure with dry stack tailings storage, diesel power generation system, water supply and water treatment facility, and operations infrastructure (assay lab, truck stop, warehouse, dry room and a central administration complex). The components of the facility are to be fabricated in China. We had expected a more rapid conclusion to this process given the relative high level of area infrastructure and the modest scale of the Tuvatu project relative to larger mines built in more remote locations. This accounts for the project’s reasonable capital costs.
It is apparent that any delays may primarily be attributed to Lion One’s desire for competitive bidding and insistence that the project be constructed in compliance to western standards and the Fijian Building Code. Lion One has said that they are satisfied with the quality of bids and we suspect the vetting process will be concluded in the coming weeks. Lion One has issued a request for an underground mining contract. This will be for initial rehabilitation, development and stockpiling ore for initial production to be completed in 18 months. This includes enlarging the existing exploration portal (and constructing a second production portal), expanding the existing exploration decline (from 3.5x3.5 meters to 4.5x4.5 meters), completing the extension of the existing decline with level development and ventilation raises. They also are expected to complete initial stope production available from the existing exploration portal which targeted for the fourth quarter of 2017. Lion One said that the first 500 meters of the 700-meter exploration decline has been dewatered. They anticipate the arrival of a more powerful pump in the near term will ensure complete dewatering within 30 days.
Precious Metals Mining 3 Summary of Current Drill Program Progress
Lion One commenced the current drill program in October of 2016. This was initiated with a surface diamond drill rig in 2016 and followed with an underground drill rig in January of 2017. On May 9, 2017, Lion One had reported that it had completed a total of 6,493 meters of diamond drilling has been completed, consisting of 5,744 meters in 28 holes from the surface and 739 meters from 7 underground drill holes. This included drilling for metallurgical purposes.
In our opinion, the drill results reported by Lion One in 2017 continue to intersect gold mineralized lodes at widths and grades attractive for underground mining. As we are optimistic for the project’s longer-term prospects for developing gold resources, we believe that the ongoing resource definition of gold lodes to be mined early in the mine life to be the priority over expanding the resource or to report high-grade gold intercepts. Having said this, Lion One has intercepted a number of impressive intercepts which are located near the existing portal and above the existing exploration decline.
Highlights near the decline on the margins of the existing resource includeTUDDH407, 409 and 410 and “well outside existing stopes” including TUDDH408, 419 and 425.While not expected to be “true widths,” these intercepts represent the potential for expansion of near-term mining, which is positive for mine economics, and evidences the potential to locate additional gold mineralization upon commencement of underground drilling.
Though drill assays may be delayed by the time required to clear customs and transport samples to Australia, drilling is ongoing and we anticipate another release of drill results in the coming weeks.
Concluding Comments
Lion One shares are currently at close to one half the 52-week high and below our target price. While the development schedule has been delayed beyond our initial expectations, Lion One is advancing the project, is building a management team, increasing the depth of the team and proceeding with care. While the gold sector is not as strong as the first half of 2016, the gold price is reasonably stable and above levels included in the company’s Feasibility Study. In our opinion, this is about the size of market caps of other companies in the junior market sector that are at the inferred resource or PEA stage. We see this as a good point to acquire additional shares of Lion One and retain our Buy Rating and target price of C$1.40 per share.
