Northwest Resources (ASX: NWR) has made an exceptional intercept of 8 metres at 33.6 grams per tonne gold and 1% antimony from ongoing infill drilling at its Blue Spec Gold-Antimony Project in Western Australia.
This includes an even higher grade interval of 4.4 metres at 60.2g/t gold and 1.9% antimony.
Each of the five holes drilled to date at the Blue Spec deposit has intersected the predicted mineralised shear structure at or very close to the expected position, providing the company with a high level of confidence in the continuity of the structure and the company's underground development plans.
Two of the holes intersected the Blue Spec Shear structure in a zone which had been excluded from the current resource model between the -20m level and -90m level.
This zone will now be incorporated into the new Blue Spec resource model to be released after the completion of the infill drilling program.
Northwest is drilling 12 holes at Blue Spec totalling 5,500 metres of diamond drilling. Nine of these have been completed with further assays pending.
Separately, the first of two drill rigs has started drilling at the Gold Spec deposit.
Diamond drilling at both deposits is designed to increased drill hole density to improve the Mineral Resource classification to Indicated over a substantial vertical strike extent under historical workings to underpin the investment case for the project.
This will also allow a maiden Ore Reserve to be prepared as part of the ongoing Definitive Feasibility Study for the project.
The resource at Blue Spec and Gold Spec currently stands at 646,000 tonnes at 15.8 grams per tonne (g/t) gold and 1.2% antimony for 328,000 ounces of gold and 7,900 tonnes of antimony.
The Blue Spec Shear Gold-Antimony high grade underground mining project is the subject of a highly positive Scoping Study and has already received substantial overseas interest in securing offtake rights to future concentrate production.
Under the study released in September 2012, Blue Spec would return a Net Present Value of $137 million over an initial mine life of five years. The project could be in production in late 2013, or early 2014.
Where previous owners of the project have struggled, the very high payment terms for gold contained in antimony concentrate now available means that there is no longer a commercial imperative to separate the gold and antimony in Blue Spec-Gold Spec ores through complex treatment processes.
This is reflected in compelling C1 cash costs of $400 an ounce with total cash costs of $833 per ounce identified in the Study.
Northwest's plan to produce a gold enriched antimony concentrate for direct sale takes advantage of the excellent flotation properties of both gold and antimony and is a low risk market driven solution to the problem of poor metal recoveries in the past.
Capital plant and equipment costs are estimated in the Study at $34 million.
The Study is based on a nominal mill capacity of 250,000 tonnes per annum with a 92% and 95% recovery for gold and antimony, respectively.
Banking on strong global demand for antimony, Northwest Resources is likely to enjoy improved sales terms from Chinese smelters.
The company is significantly undervalued at a price of A$0.12 (market capitalisation: $19.7 million) when compared to Northern Star and there is room for its value to at least double.
Also, Proactive Investors were one of the first movers behind Northern Star Resources when it was trading at $0.045. We wrote on 6th May 2010 that it could be worth at least $0.18 at the time, which it reached within months. It hit a recent high of $1.19. Northern Star was closer to production than Northwest.
Based on the upside potential of Northwest (and similarities with not only Northern Star in terms of high grade - but alsoMandalay Resources in terms of gold antimony deposit), and making allowances for stage of development, we believe thatNorthwest Resources could be worth between $0.30 to $1.00 in 12 to 18 months time.
We believe the share price will begin to move once Northwest completes the various phases of its DFS, advances funding agreements, and commences mine construction.
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