St George Mining (ASX:SGQ) has received a Speculative Buy from broker Bell Potter, with an initiation valuation of $0.26 per share, following major new nickel sulphide discoveries.
This is well above the current share price of circa $0.10 per share.
The following is an extract from the report.
Cathedrals discovery continues to confound the “experts”
The discovery of nickel-copper-cobalt-platinum group metals (PGM) mineralisation in the Cathedrals Belt in the Mt Alexander Project of St George Mining (SGQ) in the Laverton district of Western Australia is a very exciting one that clearly represents a quite different geological setting for nickel sulphide mineralisation in the Eastern Goldfields of WA.
The high grade nature of the discovery could represent the best example of a Raglan-style deposit in the country.
While it is still early days, the nature of the nickel mineralisation at Cathedrals has surprised and confounded many nickel “experts”.
This is particularly as the mineralisation, which seems to be recrystallized and to occur in clusters of mostly massive pentlandite, is within ultramafics oriented in an east-northeast direction and not in the usual north-north-west orientation of virtually all of the known and often very substantial komatiitic nickel sulphide deposits in WA’s Eastern Goldfields.
Very high metallurgical recoveries are indicated by initial testwork.
Geophysics points the way
Geophysics has been an integral part of the exploration in the Cathedrals Belt, with
electromagnetic (EM) methods assuming a very important role.
With ultramafics in the Cathedrals Belt often occurring as relatively small windows in a dominantly granitic terrain that is obscured by cover, EM methods have been used to target the initial holes that have achieved a very high success rate at intersecting significant zones of shallow massive nickel sulphides.
Recent more extensive and higher powered EM surveys using the Samson technology have identified multiple new and likely deeper conductors currently being tested by a major drilling program that began recently.
Significant gold potential now getting the drill’s attention
SGQ has built up significant gold interests in the prolific gold-bearing district of East Laverton where its recent work, which builds on the results of previous explorers, has defined a multitude of attractive drill targets.
The company has identified multiple gold prospects across its significant tenement position which have favourable structural, alteration and geochemical features indicative of the presence of large gold systems.
Drilling of the highest priority targets has just begun.
Nickel price suffering from laterite production and high stocks
Nickel stocks are at very high levels in absolute terms and relative to other base metals due to the strong growth in lateritic nickel output related to Asian nickel pig iron production.
The nickel price has been declining since its recent peak at US$5.32/lb in November 2015 but we see it recovering to around US$7/lb over the next few years.
Investment thesis – Speculative Buy, valuation $0.26/sh
Drilling of EM conductors has discovered significant amounts of shallow, high grade nickel-copper-cobalt-PGM mineralisation in the Cathedrals Belt, which is being followed up by the initial 2017 drilling program on multiple additional EM targets.
SGQ’s Mt Alexander nickel mineralisation differentiates itself by occurring in a very different (Raglan-like) geological setting than most WA nickel sulphide deposits and by having a potentially viable path to commercialisation now.
Our assessed valuation of SGQ is $0.26 per share based on its exploration potential, mainly for nickel but also for gold, and accordingly we initiate coverage with a Speculative Buy recommendation.