pattos brief

Phoenix Gold Limited (PXG) - SPEC BUY

Event - Solid drilling improves economics for a near term mining scenario

• Impressive drill results at the company's Catherwood gold project.
• Catherwood is a small scale mining project that can deliver significant near term cash flow for the company.
• Highlighted intersections outside the current 27koz resource envelope include: 25m at 4.14g/t, 17m at 3.66g/t, 12m at 4.18g/t, 10m at 4.06g/t, 2m at 18.02g/t and 22m at 1.45gt.
• Importantly all intersections were from less than 20m of the surface.
Impact
• PXG will now incorporate the latest drilling into un updated resource model which is expected to significantly improve the project's economics. A BFS completed on the project in late 2011 indicated that ~$15m in free cash could be generated using a PXG owned and operated mill assuming a gold price of $1500/oz. Given the mill is yet to be constructed, negotiations with nearby third parties are well advanced and we expect to see a decision to mine in the September Q.
• PXG is reviewing its mining options for the deposit with a view to maximizing cashflow. We see a mining and toll treating agreement under PXG management or the sale of the right to mine as the most likely scenarios. Initial indications are that mining the deposit in 2 stages will improve up-front positive cashflow, especially given the latest near surface results.