Ann: Phoenix signs Catherwood Gold Mine developme, page-9

re: Ann: Phoenix signs Catherwood Gold Mine d... http://www.proactiveinvestors.com.au/companies/news/34326/phoenix-gold-to-generate-substantial-cashflows-monetising-stockpiles-34326.html

Phoenix Gold to generate 'substantial cashflows' monetising stockpiles
Wednesday, October 10, 2012 by John Phillips
The ore agreement with Norton highlights Phoenix's success remaining a self-funded gold explorer by monetising historic stockpiles of ore. Cashflows from this strategy have helped fund exploration which has delivered a four-fold resource increase in less than two years to 2.24 million ounces. Phoenix Gold (ASX: PXG) has executed a Right to Mine Agreement with Norton Gold Fields (ASX: NGF) for the development of the Stage One cutback of the Catherwood gold mine - which is located in the prolific Goldfields region of Western Australia.

Stage One will generate substantial cash flow for Phoenix as the company's ore will be processed at Norton's 3.5M tpa Paddington processing facility located 35 kilometres east of Catherwood, with all ore haulage to utilise existing haul roads.

Payment to Phoenix will comprise an initial deposit, prior to mining commencing, after which payments will be made to Phoenix on an agreed rate per ounce of gold recovered. The payments to Phoenix have a guaranteed floor price and Phoenix share in any upside should the mine exceed production estimates.

The agreement has Norton funding the mining, haulage and treatment of ore from Stage One of Catherwood cut back - with Phoenix retaining ownership of the project and all associated tenements.

Jon Price, managing director for Phoenix commented: “This agreement combined with earlier stockpile sales agreements with Norton have satisfied our objective of generating cash internally to self-fund further work on our core projects.

“Monetising historic stockpiles and our non-core mining projects provides funds without risk or distraction, so we can focus on our strategy, which is to grow resources at our larger projects as fast as possible. Along with this we plan to complete mining studies to determine optimal mining and processing routes for our core projects.”


Catherwood BFS

Phoenix completed a Bankable Feasibility Study on Catherwood in 2011, with results indicating a mine design comprising a two stage cut back to the existing pit at Catherwood. The Stage One and Two designs produced 313,600t at 2.69g/t Au for 27,000 ounces and up to $15.6M in free cash flow at A$1,500/oz gold price.

However, the BFS assumed Phoenix owned and operated a processing facility at Castle Hill around 5 – 10kms to the north of Catherwood. Since the BFS was announced Phoenix completed the appropriate studies and documentation to apply for mining approvals from the relevant state departments.

Following approval, Phoenix treated ore from Catherwood through the toll treatment mill in Coolgardie to verify the metallurgical assumptions within the BFS and also generate cash for the company.

Due to the very positive results, for both grade and recoveries, from the treatment of the ore Phoenix completed infill drilling of the supergene hanging wall zone within the Stage One design in early 2012.

An updated geological model was prepared for third party operators to review with ongoing negotiations resulting in execution of the deal with Norton. Development of the mine is expected to commence within the next three months with first gold production expected in the March Quarter 2013.


Analysis

Phoenix will use cash generated to fund exploration and studies on larger projects, with Stage One production estimated at 19,000 ounces at a grade of 2.4g/t.

Based on the current Australian dollar gold price of A$1700 an ounce, gross cashflows of around A$32 million will be generated on the sale of the gold, generating 'significant cashflow' for Phoenix.

The sale of these small stockpiles makes Phoenix a self-funded explorer, with the company growing the resource base four-fold in under two years to 2.24 million ounces.

Shares in Phoenix Gold have recently started to trade higher to around $0.35 as the resource has grown and more ore agreements have been established - compared to $0.20 mid-year.

The increase in share price could be just the beginning, and with $3.8 million in cash and EV/Resource per ounce of under $25 - Proactive Investors expects the share price to continue to rise as the resource grows.

There is also additional upside for the EV/Resource per ounce to move closer to the peer average of around $50.

Another plus is with the cash generated from ore agreements - the company doesn't require large equity capital raisings - and therefore no dilution to the stock.