Best Drill Interceptions In The Metals Mining Sector For The Week Ended May 12, 2019

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Includes: GOLD, KNTNF, PAAS, PSDNF
by: Gold Panda
Summary

Pan American Silver has an interception of over 1,000(AuEq.)m at La Colorada.

K92 releases more high-grade drill results from Kainantu.

Poseidon with massive high-grade disseminated nickel sulphide intersections below Black Swan.

(Source: Exploration Insights)

Introduction

If you're into investing in the mining sector, you should know the above chart very well. This series covers the three projects with the most significant drill interceptions over the past week as well as the prospects of the companies which own these projects. I will use data from the weekly bulletin of RSC Mining and Mineral Exploration, which can be found on its website. Note that the drill interceptions are converted into grades of gold equivalence using the following formula:

(Source: RSC Mining and Mineral Exploration)

RSC Mining and Mineral Exploration has chosen gold as the metal equivalent for all conversions, as it considers it the most widely used and best-understood benchmark to determine or appreciate the grade tenor of a drilling intercept.

(Source: RSC Mining and Mineral Exploration)

1) La Colorada silver project in Mexico

On May 8, silver giant Pan American Silver (NASDAQ:PAAS) announced that it intersected 276.1 m at 34 g/t Ag, 0.18% Cu, 1.69% Pb and 3.76% Zn from 536.3m in hole U-26-19 at its La Colorada project. This is equal to 1,099(AuEq.)m and this hole was drilled on the same section as hole U-68-18, which intersected 308.1m at 46g/t Ag, 0.20% Cu, 1.93% Pb and 4.56% Zn from 328.9m. Pan American said that it drilled more than 7,200 meters drilled in Q1 2019 at La Colorada and plans to release a first resource estimate for the new mineralized system in late in 2019. The company has discovered wide zones of mineralization below the current production levels - high-grade mineralization in limestone replacement mantos and thick intercepts of skarn mineralization at depth.

La Colorada produces a silver and gold dore and silver-rich lead and zinc concentrates. It’s the largest silver producing mine of Pan American Silver and it produced 1.99 million ounces of silver in Q1 2019.

(Source: Pan American Silver)

In 2017, the company completed a $137 million expansion of the mine which included a new 618-meter deep mine shaft, a new sulphide processing plant, further development of the underground mine, and a new 115 kilovolt power line.

In 2018, Pan American added 11.1 million ounces of new silver reserves to La Colorada.

(Source: Pan American Silver)

In 2019, the company plans to drill around 42,000 meters at the new skarn discovery at La Colorada.

2) Kainantu gold mine in Papua New Guinea

On May 6, K92 Mining (KNTNF) announced more high-grade drill results from the Kora North Extension of its Kainantu gold mine. The best interception was 2.05m @ 363.91g/t Au, 17g/t Ag and 0.08% Cu from 68.8m in hole KMDD0128, which is equal to 747(AuEq.)m.

Drilling at the project is aimed at upgrading the known resource and provide grade control information for mine planning.

Kainantu is located close to the Wafi-Golpu and Ramu projects in PNG:

(Source: K92 Mining)

K92 was listed on 2016 and I was considering investing in the company back then as it had a large high-grade gold resource of more than two million ounces at an average grade of more than 11g/t AuEq. In 2015, the company bought the project from Barrick (GOLD) for just $2 million plus $60 million in future payments if certain milestones are reached, such as producing more than a million ounces of gold over the next nine years. Barrick itself bought Kainantu for $141.5 million in cash in 2007 and spent around $100 million upgrading infrastructure and on other expenses, and an additional $41.3 million on exploration and expansion activities, including drilling 78,935 meters of core. The owner before Barrick spent another $80 million on development.

Kainantu currently has a resource of just over three million ounces of gold equivalent and K92 aims to update the Kora/Kora North resource to five million ounces in 2019:

(Source: K92 Mining)

Production in Q1 2019 came in at 19,778 ounces of AuEq and K92 plans to boost it to 70,000 ounces in 2019 and 120,000 ounces in 2020.

The economics of the planned expansion are amazing:

(Source: K92 Mining)

3) Black Swan nickel project in Australia

On May 6, Poseidon Nickel (OTC:PSDNF) announced that it intersected 223.1m @1.02% Ni disseminated nickel sulphides from 51.75m at its Black Swan project. This is equal to 672(AuEq.)m and the hole formed part of a 1,004m diamond drilling program targeting disseminated mineralization 900m below the base of the open pit at the project.

Black Swan comprises two closed mines and a 2.2Mtpa concentrator near the city of Kalgoorlie:

(Source: Poseidon Nickel)

The Black Swan open pit mine and the Silver Swan underground mine currently contain a resource of 179kt of nickel metal grading 0.6% Ni and 136kt of nickel metal grading 9.1% nickel metal, respectively.

(Source: Poseidon Nickel)

Poseidon bought the project in late 2014 and plans to eventually restart mining. In July 2018, the company released a positive feasibility study into restarting the operations that forecast capital expenditure of A$56.7 million and a net present value of A$43.4 million:

(Source: Poseidon Nickel)

Conclusion

Pan American Silver has delivered more impressive drill results from the newly discovered wide zones of mineralization below the current production levels at La Colorada and I expect this system to improve the project’s reserves and mine life. I think that it’s even possible for the company to carry out another expansion of the project over the next few years. However, I’m not a fan of the silver mining sector as I think that pretty much every silver producer is overvalued from a discounted cash flow perspective.

K92 posted more great drill results from Kainantu and the project produced almost 20,000 ounces of gold equivalent in Q1 2019 at AISC of just $545 per ounce. This is a very low cost project and it looks amazing on paper but I still remain concerned that the company is overvalued. The measured and indicated resources are just over 0.6 million ounces of AuEq and this a project on which previous owners spent over $200 million before deciding to sell it for next to nothing.

Drilling under the Black Swan open pit unearthed massive high-grade disseminated nickel sulphide intersections and underground refurbishment at Silver Swan is underway to enable safe access for mining and exploration drilling ahead of a planned restart of operations. However, I’m not impressed by the financials of the Black Swan project as it has a very low mine life and high operating costs. Poseidon will have to come out with something really special on the exploration front to convince me that this project is worth investing into.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am not a financial adviser. All articles are my opinion - they are not suggestions to buy or sell any securities. Perform your own due diligence and consult a financial professional before trading.