Becoming gold miners, not just explorers

NAG’s great new asset, Warwick Grigor from Far East Capital, puts recent drilling results into perspective in an easy-to-understand Weekly Commentary.

When accuracy and impressions can diverge in exploration reports - NAG and SXG

Victoria gold exploration projects continue to deliver some impressive drill results. The previous week it was Nagambie’s (NAG) high grade gold/stibnite veins, while last week it was Southern Cross’s (SXG) turn to report impressive results from not dissimilar geology. Both were very good but each company chose to emphasise different aspects. This is probably because one company’s release was written by a geologist, and the other, by a mining engineer.

Nagambie went to the effort to provide an interpretation that was consistent with the objective of developing economic mines, taking into account geometry and structure. It wasn’t about generalisations. It was about estimated true mining widths and mining cut-off grades, giving the reader an ability to visualise the sort of mine that was being contemplated.

By way of contrast, SGX was all about arm waving and general gold endowment without much thought being given to mining parameters. Its headline intercept of 305m at 2.4 gpt AuEq is academically factual but not contextually relevant. Normally, width implies a correlation with a lateral dimension that would be amenable to mining. However, you need to understand that a hole like this one, into a series of high grade veins, should not be evaluated according to length because it has no relevance in the mining sense.

Geologists and mining engineers have always been competitive in expressing who are the most important technical personnel. Stock markets love geologists who promote grandiose geological concepts as share prices surge higher on drill results, but almost as night follows day, when it comes to the point of calculating JORC resources, the high flying expectations take a haircut. It often turns into a crewcut when the engineers convert a resource to a reserve.

Nagambie shareholder expectations should be reasonably attuned to what a mining reserve calculation will deliver, whereas SGX shareholders will have to make greater adjustments when the narrative progresses from geological to mining perspectives. In the interim though, the SXG share price is reacting the way the directors would wish. That intercept certainty assisted in the $16m placement at 58¢, undertaken last week.

Interestingly, SXG owns about 10% of Nagambie’s issued capital and it has joint ventured other exploration projects with NAG. Further, SGX may find that it will need to use the treatment plant being established on Nagambie’s lease due to environmental and permitting hurdles for which Victoria is famous. You could almost say that the two companies are joined at the hip.

http://www.fareastcapital.com.au/imagesDB/newsletter/WeeklyComm26November2022.pdf