Gold Miners ETF (GDX)

[High420]

Drilling for Gold Guinea
Nortec Minerals (NVT.V 13 cents)
www.nortecminerals.com

We will be following NVT for several months to see what transpires during an upcoming drill program. This is a gold and lithium exploration company but we are most interested in their Guinea (West Africa) gold project. They neighbor a gold mine controlled by Anglo-Ashanti that employs 3,500 people (The SAG – Siguiri Mine). SAG is a joint venture with the government known as Société AngloGold Ashanti de Guinée (SAG).

Based upon ground-work to date, this looks promising and given the proximity to Siguiri, if drilling is successful, they will not require the huge capital costs associated with building a mine – simply because the neighboring mine would likely want to acquire the project to extend mine life.


image: http://www.stockhouse.com/getattachment/4c099d9b-7ca9-4f72-83f6-e3d3ab3f0a7b/Trax1Feb27-(1).jpg?width=450&height=226

Trax1Feb27-(1).jpg
(click to enlarge)

If the image above is difficult to read, the Red Block is NVT’s Tomboko Permit and the Yellow Block is the large Siguiri Mine. The Tomboko permit boundary is only 7km to Siguiri’s plant / mill and 3km to their tailings pond. If economic gold reserves are proven on Tomboko, you can see where it makes sense for SAG to acquire these permits.


image: http://www.stockhouse.com/getattachment/6dc7e915-731b-4aa3-91cc-f42a8c1186b1/Trax2Feb27.jpg

Click to enlarge

Nortec has identified 3 areas of focus within the Tomboko permit, these are referred to as Tom-1, 2 and 3. Much of this is based on large gold sampling programs from 2007 and 2008 where soil and termite mounds were sampled to determine gold values in the soil. The 2007 project tested 1,000 soil samples and was followed up with a much more rigorous program in 2008 where 8,641 samples were collected. With nearly 10,000 soil samples, there is now considerable data to help plan a drilling plan so the likelihood of a successful drilling program is relatively high.

Guinea’s mineral wealth includes iron ore, diamonds, uranium, and gold. There are at least 3 large, international gold companies currently operating in Guinea: AngloGold Ashanti, Nordgold, and Semafo. It’s important to know that there are large miners operating in a country, not just to ensure policy, protocol and practices have been established, but current operators tend to be potential suitors for new gold exploration properties.

Nortec’s permits are in the northern part of the Birimian Siguiri basin, a well-known prolific gold-producing area.

image: http://www.stockhouse.com/getattachment/256664f9-2016-4287-aa91-ed4afa1d7c95/Trax3Feb27.jpg

Click to enlarge

POTENTIAL (NVT) PROJECT ECONOMICS

In the mining industry, capital is scrutinized to the extreme and SAG is investing $400 million over the next 8 years (they hope to be around for a while).

The three-year trailing all in sustaining costs (AISC) at Siguiri are $989/oz. The average recovered grade at Siguiri for the last three years has been 0.84g/tonne. A key note here is that this is recovered grade, which is different than the mined grade - which is again different than the in-situ sampled grades. If we assume an 80% recovery at the plant, we can back-calculate the mined grade is somewhere around 1.0-1.1 g/tonne for Siguiri.

We will assume that NVT’s Tom-1 would have the same grade (although past work indicates the grade could be considerably higher)
We will assume a 25km haul at $0.15/t-km would increase operating costs by ~$38M/year or 14%
We will also assume some capital would have to be spent on roads and infrastructure (to haul from Tomboko to the SAG plant). At $500,000/km, a new haul road would cost ~$13M plus $7M in miscellaneous infrastructure costs. This puts development capital at ~$20M (next to nothing for a large mine).

This is why the location of Tomboko is more important than grade.

If we’re to include the entire haul distance as extra haulage costs, the AISC would be ~$1,130/oz. which is still slightly economic. So, if the grade was the same as what SAG is currently mining, odds are, that no later than 2023, we would see mining begin by SAG on Tomboko.

From the past channel and grab sampling done on Tom-1, the average in-situ grades of the 6 highest samples was 24.13 g/tonne, which at a 10:1 dilution gives us 2.41 g/tonne. If we are to assume an 80% recovery, this would result in 1.93g/tonne recovered grade versus SAG’s current 3-year average of 0.84 g/tonne.

Let’s take a blue-sky approach to this to see the potential.

If the drilling program on Tom-1 can justify a large enough deposit to invest the $20M in capital and the recovered grade was 1.93 g/tonne versus the current 0.84 g/tonne. The increase in gold production and resultant savings per ounce each year for SAG would be dramatic.

Comparing the grades, this would increase Siguiri Mine production by 352,000 ounces per year to a total of 629,000 ozs. for an additional cost of only ~$60M/year (operating and capital). That’s an extra $444M in revenue at today’s gold price for only an additional $60M in spending per year or an increase in net profit of $384M/year. If this were the case, the AISC which currently sits at $989/oz. would drop to $526/oz.

EVEN IF THEY ONLY MINED 1 TO 2 YEARS:

1yr - spend $20M on development capital – haul road and infrastructure + $38M on incremental haul cost (worst case scenario assuming 25km).

Move 10.1 million tonne of rock per year (3yr trailing average for the existing mine)
> that 10.1M tonne of rock results in:

10.1 x 1.93 g/t = 629,000 ounces

Incremental capital (extra cost) was $20M + 38M hauling… BUT the extra revenue is $444M U.S.

THIS IS A “NAPKIN” EXAMPLE OF WHERE PROJECTS LIKE THIS CAN MAKE A LOT OF SENSE.
Then it boils down to… what is that incremental revenue worth to SAG?

** This is factored into only one year of mining, and all capital spent and depreciated in the same year.

The tiniest increase in grade of their reserves, makes TOMBOKO that much more important to them.

FOR DEBT LADEN MINING GIANTS… THIS INCREMENTAL REVENUE IS CRITICALLY IMPORTANT
AND ITS ONLY POSSIBLE BECAUSE OF THIS….

image: http://www.stockhouse.com/getattachment/a6de2b5c-336d-4774-b23f-98ae9f1e47e1/Trax4Feb27.png

Click to enlarge

Fig. – Potential annual profit to SAG versus recovered grade at Tomboko

It is important to remember that NVT has NO proven reserves at this stage. The first stage in proving this project may have economic potential is the upcoming drill program. In February, they requested bids from local companies for 2,500 metres of reverse circulation drilling. Per their last press release:

“Nortec already has a management and technical team in place to monitor and supervise the drill program. The program will initially be focused on the Tom-1 zone north target. Drill hole pads have already been located for drilling.”

CONCLUSION

Nortec has 50 million shares outstanding with 16 million of those issued in December at 5 cents. In April this paper will become free trading so we want to be “cautious” of it. If they produce strong results from the upcoming Guinea drill program (expected to start sometime in March), this paper should not be an issue.

If they are able to drill in March (or even April), we must then wait for assays (analyzing drill core). Some companies can turn this around quickly, but other times it can take months. I don’t know what their turn-around time will be in this region of Africa but this “timing risk” is why a person wants to get paper as cheap as possible (because we need time to wait this out).

A successful drill program would indicate that this share price could go a lot higher. However, in the interim, a person would want to see how much paper comes out in the low or mid teens (to manage downside risk). During and after the drill program, they should be able to promote this story as it is quite appealing.

Just keep in mind that if drill results come back weak, the share price could easily fall below 10 cents. The upside potential is strong, but be aware of your downside risk once drill results are known.
_____________________________________________________________________

Read more at http://www.stockhouse.com/opinion/tickertrax/newsletter/2017/02/27/spring-gold-spec-nvt-13-cents#iWEIE9IZdkBrLmqe.99