why abu, page-5

With some luck, the POG in AUD may be ready for a renewed uptrend following its significant double bottom of around $1,300 (closing prices) of April and late June. The larger fall in POG has been priced in to ABU’s sp and the smaller short term moves are not nearly as significant for ABU as the trial mine and its findings.
Any confirmation of grade, recoveries cost estimates etc, at least around in line with expectations should take out part of the risk discount in the sp.

Any positive or negative surprises will have a larger impact. FMX correctly reminds us that with nuggetty gold systems, reconciliation of grades during mining can go either way.
Up to now we have had many more positive surprises than disappointments. Maybe that is a reflection on the quality of this deposit. The only significant disappointment I can recall was drill results on the east side vein not in line with expectations following trenched results but that was just one vein and drill results can be very much hit and miss in these systems so not conclusive. Trial mining will give us more info on that vein and with drilling not hitting much it would not have added significantly to the jorc resource (the 3D of the jorc shows this vein only contributing close to surface). Upside remains from this vein if trial mining shows drilling simply missed the gold identified by trenching.

Some of the highlights for positive surprises have been:
The size and grade of the maiden jorc resource;
The increase in ounces and grade of the jorc upgrade after just one season of work (43% increase in contained gold, 27% increase in overall grade and 56% increase in grade for indicated resource). This upgrade came after the scoping study which was based on the maiden jorc;
Wide high grade intersects at depth on the WL which showed increasing grade and width with depth and remain open at depth (highlights 17m at 7.66g/t including 3m at 41g/t and 18m at 5.5g/t inc 10m at 8.23g/t). This has strongly positive implications for underground mining to add value- the scoping study only investigated open pit;
The discovery of the very high grade GH on a vein previously thought to be barren of significant gold (indicated resource includes a high grade core of 49,000oz at 45g/t from surface to around 60ms deep);
Higher than expected recoveries (up to 97% from gravity recovery test work which was up from 85% recovery from initial tests and assumed in the scoping study) and much higher than expected grades (around 143g/t and 40g/t from the two separate 100kg samples sent for recovery test work. Those bulk samples were made up of a number of samples taken from various locations and meant to be representative of a resource made up of veins of varying thickness which averaged 24g/t in surface sampling. Those grades were normalised for the resource estimate over 1 m widths to 9.89g/t for drill results and 12.9g/t in trenching. Trenching has produced many more samples than drilling (23tonne of mineralised samples versus 2.1t for drill samples) so might be more representative of grade. Trial mining will be close to surface so is unlikely to disappoint on grade.

I dabbled in another nuggetty gold deposit company recently- OGX which had historic small scale mining producing grades averaging over 20g/t yet despite those mined grades and drilling showing continuation of the mineralised zones, drill assays returned very few decent results. That’s the nature of these nuggetty systems. ABU however has returned a large number of excellent drill results both close to surface (a truly spectacular 42m at 44g/t for GH), and at depth with highlights including;
2ms at 413g/t from 240ms within 6ms at 140g/t (31 Aug 2011),
1m at 1,360g/t within 2m at 683g/t within 5m at 274g/t from 61ms (27 July 2010),
5ms at 52g/t and 8ms at 24g/t (2 Aug 2012).
2m at 87g/t including 1m at 156g/t (9 Oct 2012).
These drill results are a reminder that some of the best grades and widths have been hit at depth not just in surface trenching. Best individual surface sample result from GH is 784g/t (6 Aug 2012). Best deep drill result was nearly double that grade at 1,356g/t (as shown above).

The scoping study estimated $383/oz cash cost or $511 total costs (inc royalty etc). This was based on 260,000oz recovered from open pit to 100ms deep (and based on the maiden jorc).
The upgraded jorc resource shows a similar amount of gold down to only around 60ms deep. So the same amount of gold may now be recovered from open pit with a much lower strip ratio.
That should result in significant mining cost savings.
Also putting downward pressure on cash costs will be GH with its very high grades over much wider mining widths and again only down to 60ms deep which was not discovered until after the scoping study.

So while there is always risk of disappointment, everything I look at points to better chances of further positive surprises through the trial mine results rather than negative surprises.