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Pacific Niugini Set For First Production At Nicolsons Gold Project

Pacific Niugini (ASX:PNR) continues to advance its Nicolsons Gold Project near Halls Creek in Western Australia towards production in the third quarter of 2015.

Forecast margins are very impressive with all-in sustaining costs circa A$850 per ounce and a hedge at A$1,581/oz - delivering around a A$700/oz margin.

The company is targeting positive cash flow in just 6 months from commencement. Pre-production capex is estimated at just A$10.7 million and set to deliver Net Profit Before Tax of $58 million.

In the month since completing funding in February, the company has completed the pit cutback and de-watering.

The underground jumbo is also commencing work for portal establishment.

Major equipment including the primary and secondary crushers as well as all pumps have been removed and sent to Perth for refurbishment.

All tank agitators removed ready for replacement.

In addition, extensive electrical testing completed in MCC and crushing circuit have indicated that the majority of components do not require replacement.

Construction of the Tailings Storage Facility is also proceeding on schedule.

The full crew is on site and construction is expected to be completed in June 2015.

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

Funding Package

In February, the company completed the funding package for the project.

This includes:

- 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 metrics 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

Pacific Niugini is making strong progress towards bringing its Nicolsons Gold Project into production in the third quarter of 2015.

The project has all the hallmarks of becoming one of the gold company success stories of 2015.

A bite-sized capex of $10.7 million; all-in sustaining costs of circa A$850 an ounce - providing around a A$700/oz margin from the hedging facility of A$1,568 per ounce; and potential for further resources deliver a mouth watering NPAT of $58 million.

Based on this, Proactive Investors has a share price target for Pacific Niugini of $0.26 - $0.30 per share within 12 months based on gold production, forecast profits and EPS estimates.

Simply, we think the market has not twigged to the near term cash flows, nor that Metals X (ASX:MLX) executives are guiding Pacific Niugini, Peter Cook - Non-Executive Chairman and Paul Cmrlec, Managing Director.

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX "Small and Mid-cap" stocks with distribution in Australia, UK, North America and Hong Kong / China.