Well right on queue we get some more commentary from WG at FEC
"Kingwest drill results and production plans
Kingwest Resources (KWR) brought out two ASX releases recently. The first one was an update on the Sir Laurance discovery at Lake Goongarrie, where a 100m line step-out provided confirmation of the significant width for the bedrock gold mineralisation, from aircore drilling.
While the 350m width was not as great as the 550m from the first line, it is by no means the final width. This latest line was an opportunity to test 100m further north, whilst the drill rig was still on location. It provided good confirmation.
There were another seven targets that were aircore drill tested in what was essentially a soil sampling program in areas where the lake cover is less than 20m deep.
Most of these came up with encouraging grades of better than 100 ppb Au, in proximity to the NW-SE fault structures believed to be the source of mineralisation. So far so good.
Early in November, KWR is bringing in a diamond rig to drill four deeper holes to test for structure at Sir Laurence. At the same time the aircore drill rig will continue to test for anomalism.
Near-term gold production in JV
That is all positive news on the exploration front, but the production agreement with FMR Investments has more near-term implications for cash flow.
FMR, a company associated with “Piggy” Bartlett, is to earn a 60% equity in the Yunndaga gold deposit, by funding the development of the resource and treating the ore at its Greenfields Mill at Coolgardie.
Capital costs are estimated at $12-14m, to develop the underground resource for a 300,000 tpa mining rate. FMR will fund this 100%, with KWR to receive upfront payments of $500,000 on signing the JV operating agreement and another $500,000 on commencement of the decline, expected to be in April 2022.
It then has to wait until FMR has recovered it capital outlay before receiving its 40% share of free cash flow. Eventually, perhaps in 18-24 months, KWR could start to receive $0.5-$1m per month.
When I first looked at the Menzies gold resources of Kingwest I thought they were interesting, but they still didn’t represent a critical mass to justify the development of a stand-alone mill - so I was cautious.
However, the deal with FMR brings one of the most successful private gold production groups into the picture. They already have a mill through which to treat the ore, albeit 170 km trucking distance away.
They have the hands-on experience to make money where many others would probably fail. The mining widths of 3-4m will enable mechanised mining using efficient long-hole open stoping techniques and we are told that anything above 2 gpt could make money.
The reported grade is 4.6 gpt using a 3 gpt cut-off, but don’t be surprised if the mine delivers even better grades, with good management.
The orebody has only been drilled to 100m below the floor of the open pit and it is open at depth. The company expects that the mine life will be much longer than what the current resources suggest, as deeper drilling is undertaken, but time will tell.
Still priced at option value
It is a smart deal for Kingwest that could result in strong cashflow to advance the Lake Goongarrie exploration program, thereby minimising dilution.
However, that doesn’t mean the company won’t issue more shares along the way, but again, time will tell. It all depends on how aggressive the company feels, and that depends on future drill results. Given the blue sky appeal and the comfort of future cash flow, the shares continue to be inexpensive in the market with a market capitalisation of less than $30m."
KWR Price at posting:
14.0¢ Sentiment: Buy Disclosure: Held
