Buy, Sell, Hold: Northern Star and De Grey A LOOK at gold...

Buy, Sell, Hold: Northern Star and De Grey
A LOOK at gold producer Northern Star and explorer De Grey after recent investor site visits.
Extracted from Gold And Silver > Research, 04 June 2021 MNN

De Grey Mining (DEG)

Analyst: Tim McCormack, Canaccord Genuity
Recommendation: Speculative buy
Price target: $1.60
Thursday's close: $1.57

Reason: Hemi site visit
Comments:

As mentioned in our latest research note, our 4-5Moz at 1.1-1.5gpt expectation for the maiden Hemi resource continues to look increasingly conservative. Note, that our estimate was derived excluding Diucon and Eagle which have only been recently discovered (January 2021).

With steady results news flow since the recent discovery, and noting the cluster of rigs at Diucon/Eagle (aggressively drilling out on circa 80m x 80m spacings) we now see good potential for it to be included in the maiden resource, which could drive a beat versus our expectations.

A noteworthy observation based on drill spacing is that any resource on Diucon/Eagle would only be in the inferred category at this stage, whereas we remain confident in our previous assumption that 50% of the maiden resource on the four main zones at Hemi (Brolga/Aquila/Crow/Falcon), which have largely been drilled on 40m x 40m spacings, should be in the measured and indicated category.

Timing on the resource remains "mid-year", which is in line with long term guidance. We continue to see our base case of A$800 million capital required for a circa 340,000ozpa at an AISC A$1050/oz (production by FY25E) for 12 years as reasonable. We note that DEG is well advanced with long lead items for the project (environment, hydrogeology, infrastructure corridors, heritage), as well as full suite metallurgical test work on Brolga/Aquila, with Crow/Falcon also expected to be complete with the next two months.

POX continues to firm as the most likely processing route, in our view, given the reliability, scalability and fact that multiple sulphides (pyrite/arsenopyrite) tend to be associated with gold at the project. We see this as the most robust recovery route for a project of this scale, notwithstanding trade-off studies versus BIOX and Albion are still underway. Metallurgical results for all processing routes have been encouraging to date (>90%), and we don't expect this to change given the geological similarities of the Crow and Falcon orebodies.

DEG has flagged that surface hydrology modelling is demonstrating positive outcomes to date, notwithstanding that the project is essentially on a flood plain (basin), has shallow groundwater and is bounded by seasonal rivers (can flood in cyclones). DEG is currently establishing a bore network to monitor groundwater conditions (both in sand cover and fresh rock). We see groundwater management as playing an important role in any large-scale mining scenario at the project.

While we recognise DEG is trading in line with our base case valuation, we maintain a speculative buy recommendation and point to our recent note that demonstrates good potential for further valuation upside across a number of scenarios.

DEG's numerous regional targets, several of which are within 10km of Hemi, its existing 2.2Moz resource base and highly prospective circa 1500sq.km land package are further corroboration of the potential upside, in our view.