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Pacific Niugini Completes Nicolsons Funding, First Gold In Six Months

Pacific Niugini (ASX:PNR) has completed its funding package for the Nicolsons Gold Project near Halls Creek in Western Australia and has commenced site works with production expected to begin in six months.

Forecast margins are impressive with all-in sustaining costs circa A$850 per ounce and a hedge at A$1,568/oz - delivering around a A$700/oz margin.

The company is targeting positive cash flow 6 months from commencement. Pre-production capex is estimated at just A$10.7 million.

Pacific Niugini has a 80% interest in the Nicolsons Gold Project while Bulletin Resources (ASX:BNR) holds the remaining 20%.

The funding was completed in two tranches: a 1 for 4 rights issue which raised A$3.92 million before costs, and a gold pre-pay facility of A$9.2 million with Commonwealth Bank of Australia (ASX:CBA).

In addition, a gold hedge of 15,076 ounces at A$1,568 per ounce was also completed through CBA to underwrite the returns from the project through the funding repay period.

The recent rise in Australian dollar gold price has been beneficial for the funding package with the company also securing funding for Bulletin.

Site works at Nicolsons commenced during the past week.

"The board is delighted that the funding package is now complete and we can get on with the business of gold mining," managing director Paul Cmrlec said.

"The stronger gold price provided an opportunistic window for better outcomes from the funding package and much improved overall economics for the project.

"Works on site have commenced with open pit dewatering and remediation of the open pit underway. We expect to cut the underground portal and commence plant refurbishment early in March and plan to commence production within six months."

Funding Package

Details of the funding package for Pacific Niugini's 80% interest in Nicolsons are:

- A gold pre-pay facility of A$9.2 million, repayable in 6,524 ounces of gold;
- A Hedge facility of PNR Facility 15,076 ounces at a fixed price A$1,568 per ounce; and
- Both the gold loan and hedge facilities are satisfied by the delivery of physical gold for a period of 22 months, commencing in November 2015.

Nicolsons Project

The Nicolsons Project offers robust economics with total pre-production Capex of just A$10.7 million and total sustaining costs estimated at A$854 per ounce.

Other key takeaways include:

- Net Profit (after-tax) of A$50 million (at an assumed gold price of A$1,400 per ounce);
- NPV (8%) of A$42 million;
- IRR of 162%; and
- Initial mine life of 4.5 years, including 6 months of pre-production activities.

The mine estimate includes Indicated and Inferred Resources, with about 79% of the mine plan (86,600 ounces) coming from Probable Reserves.

The company's re-start estimate targets 130,000 tonnes per annum.

This is focused on restoring the existing on-site processing plant at its current capacity.

The mine plan involves the development of a small scale underground mine from the base of the existing open pit.

Process plant and mine operators are to be directly employed by PNR, and underground mining equipment is to be dry hired for initial operations, minimising pre-production capital as far as practicable.

The mine plan currently only contemplates underground mining of the Nicolsons deposit.

Additional resources along strike at Rowdies and Wagtail are yet to be assessed for inclusion in the mine plan.

While the previous owner had declared JORC 2004 Reserves at Wagtail and Rowdies, PNR has not yet calculated a Reserve in compliance with JORC 2012 at those deposits.

Analysis

The completion of funding for the Nicolsons Gold Project comes at a good time for Pacific Niugini with gold above US$1,200 an ounce, a falling Australian dollar and low oil prices, which cuts operating costs.

This has been beneficial for the funding package.

Including Bulletin Resource's requirement to repay its $2.3 million gold pre-pay facility by delivery of 1,705 ounces of gold, the joint venture is required to repay a total of 8,229 ounces of gold, down from the original 9,275 ounces.

The hedging facility of A$1,568 per ounce and all-in sustaining costs of circa A$850 an ounce - delivering around a A$700/oz margin - also ensures the Nicolsons mine will be in the lowest quartile of producers in Australia.

With Capex a bite sized A$10.7 million, the Nicolsons Project looks set to be one of the success stories in the gold sector in 2015.

Taken together, the company appears significantly undervalued with a market cap. of circa A$22 million.

Proactive Investors has calculated a share price target for Pacific Niugini of $0.25 - $0.30 per share within 12 months based on gold production, forecast profits and EPS estimates.

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