the midas touch

Castle Hill, Phoenix Gold’s (ASX: $PXG) flagship project, is being hailed as the biggest large-scale gold discovery of its kind in the Western Australia goldfields since Tropicana, the acme of such discoveries.

The extent of the resource is remarkable, and even now has not been delineated in its entirety, although the figures have been consistently headed in an upward direction, from the initial 253,000 oz quoted in 2010 to the 655,000 oz in the most current set of figures.

These numbers are made all the more impressive by the fact that they cover only the first 80 metres from the surface.

Jon Price, managing director of Phoenix Gold Ltd., Is bullish on the project’s possibilities.

“Our view is there’s potentially a million ounces in the first 80 metres and we believe Castle Hill will be a multi-million ounce resource eventually.”

The project, located on the Kunanalling shear, clocks in at 7km of continuous strike thus far and remains open in all directions. Even with additional drilling along the strike of the ore body over the last 12 to 18 months and the recently completed diamond drilling program, Price says “we’ve only really scratched the surface.”

“The deeper diamond drilling is to understand what mineralization is below the 80 metres and the indications are that the mineralization just continues, it’s open along the strike and it’s open at depth.”

Price has great expectations for the results of this program, due imminently.

“People have seen [Castle Hill’s reserve] triple in size already and it’s going to triple again in our view. And every time we put a drill hole in the ground that confirms it.”

“We’re of the belief that this is a property with multi-million oz gold potential,” says Price.

“If we only had Castle Hill we’d be pretty happy but we’ve got a lot of other projects.”

Indeed, Castle Hill is only part of the story; as of June 2012, the total resource of which Castle Hill is flagship was pegged at a JORC of 1.835 Moz, an increase of 208 per cent on the 2010 figures which put the prospect at 595, 000 oz.

Among these other tenements is Broads Dam, situated on the Zuleika shear, which hosts an estimated resource of 377, 000 oz, making it “one of the most exciting bits of land we’ve got”, says Price, who points out that theBroads Dam project grades are “a lot higher” than Castle Hill’s medium grade. With much of the work on the site conducted as long ago as the mid 90’s and in an ad hoc way, the large tenement has a number of targets for drilling.

“To the south of us is a 6 Moz gold field, to the north of us is a 1 Moz gold mine,” says Price “We’ve got 15 km of strike length on the Zuleika shear and only three drill holes greater than 100m deep. We’re really excited to start exploring for these million ounce underground reserves.”

“The Broads Dam project is really exciting in terms of its potential.”

In close proximity to Castle Hill is the greenfield Telegraph prospect which has already delivered some excellent drilling results, with more expected in the next quarter.

“We’ve drilled quite a few metres and found a 1.7 km strike in a brand new area, so that’s a new discovery again,” says Price. “It’s got the prospectivity to be another Castle Hill.”

Supplementing the Castle Hill property is the recent acquisition of the Kintore project, an area that for all practical purposes is part of Castle Hill. Despite being drilled over the last five years, Kintore has never had a JORC resource estimate.

The MRE for Kintore is expected in the September quarter.

Additional to these is the recently acquired Red Dam property, more than 270 hectares adjacent to Broads Dam. Phoenix has been working on the property over the last 12 months processing existing drilling results.

Of the yield of the massive gold project, Price says “it’s continuing to grow and getting bigger and bigger whether it’s by acquiring ounces or mining them.”

This ties in nicely with one of Phoenix’s goals for 2012, namely to reach a resource of 2.5 Moz across all the projects, with a million of those at Castle Hill, a goal of which Price says “we are firmly of the belief that we will exceed that target.”

When these numbers are achieved, Phoenix Gold’s grand plan involves moving from exploration into development and eventually to production.

“We believe the critical mass for moving to development is 2.5 Moz,” says Price. “That’s why we set that target. We have a number of sources and resources in the ground to keep a long life project up and running.”

The project is proceeding at a cracking pace. Plans call for the pre-feasibility study to be completed in September of this year with the bankable feasibility study to follow bymid-2013. Construction of a AU$105 million processing plant, most likely at Castle Hill, to further bolster Phoenix’s self-sufficiency is scheduled to commence at the end of 2013.

Production is set to commence in 2014, with full scale production set for 2015, only five years after Phoenix was first listed on the stock exchange.

Apart from the massive deposits, the project has other crucial advantages. The area is rich in infrastructure, not only road, rail, water sources and a population base, but also the resources that come with proximity to unofficial gold capital of Australia, Kalgoorlie, all of which contributes, Price says, to the project’s low risk profile.

“We have access to laboratories, drill rigs, geologists,” says Price. ”Our registered office is only 50 km from our projects. We have an advantage over many. The guys in West Africa take up to three months to get their assays and we get ours turned around in eight days. If a drill rig breaks down then a mechanic comes out and fixes it, you don’t have to wait a month before you get your drill ring running again.”

Self funding

Phoenix Gold’s sites came complete at purchase with stockpiles of what was classified as “mineralized waste” in the 1980s, stockpiles that with a grade of 1 to 1.5g per tonne of gold have since assumed economic value with the market appreciation of gold. These stockpiles account for a potential revenue stream of AU$1-1.5 million dollars a year by way of sales to neighboring mills, money which is then ploughed back into the project.

The other main source of cash generation is putting some of the smaller mines – the two most advanced being Catherwood and Blue Funnel – up for sale.

“They have the ability to generate between $4 and $6 million each. We could mine them, but we found that if we want to set everything up, it becomes quite a distraction [to the main project].

Companies in close proximity to us want them, so we said ‘if you want them, we’ll take cash,’ and the negotiations are going on at the moment.”

Price feels this approach not only differentiates Phoenix, but strengthens its position in the market.

“I think in the current climate where capital markets are very tight, to have the ability to make your own cash, you’re in much better shape than those who can’t, those who rely only on the markets.”

http://www.internationalresourcejournal.com/brochures/2012/Sep/Phoenix_Gold/file.pdf