AuTECO Minerals Ltd (ASX:AUT, OTC:MNXMF) recently increased its resource at Pickle Crow by 514,000 ounces to 2.23 million ounces at 7.8 g/t (inferred), easily beating Canaccord Genuity (TSX:CF, LSE:CF)’s expectation of ~2 million ounces.
The resource incorporated assays from ~30,000 metres of drilling completed in the 1H FY22, and with assays from a further 12,000 metres pending and 8,000 metres to be drilled in the coming months, further growth of the resource base is evident, in Canaccord’s view.
Canaccord has maintained its SPECULATIVE BUY recommendation and $0.25 price target, and also highlighted the discount Auteco (A$76/ounce) trades on vs its peers (A$176/ounce) on a global grade weighted average EV/ Resource ounce metric.
The following is an extract from Canaccord’s research update:
Pickle Crow resource increased by 30%. AUT has increased its resource at Pickle Crow by 514koz to 2.23Moz at 7.8g/t (inferred), easily beating our expectation of ~2Moz. The +30% increase in total contained ounces represents an impressive discovery rate (~1Moz pa), noting that the company has grown the Pickle Crow resource by 1.2Moz at a discovery cost of less than A$18/oz since September 2020.
The resource, which sits proximal to underground development, comprises two separate and distinct styles of mineralisation:
- The high-grade quartz vein hosted resource of 1.92Moz at 9.3g/t (+0.45Moz, +31%); and
- The alteration (BIF) hosted resource of 0.30Moz at 3.8g/t (+0.06Moz, +25%).
The resource incorporated assays from ~30,000m of drilling completed in the 1H FY22, and with assays from a further 12,000m pending and 8,000m to be drilled in the coming months, further growth of the resource base is evident, in our view.
We also note that while the increase to the BIF component of the resource was modest in this instance, this aspect of the story is only just evolving, with drill testing only intensifying late in 2021. We continue to see the potential bulk mining opportunity that the BIF mineralisation as an exciting aspect of the Pickle Crow project, and expect the economic potential to be more clearly demonstrated during 2022 on the back of further drilling.
Drill program to test exciting regional targets. To date 42,000m of the 50,000m drill program has been completed with the remainder expected to be finished by March. With the resource estimate now complete, AUT has highlighted that three of the five rigs on site will be targeting early-stage regional targets outside the resource area with first results expected in JunQ’22.
Testing the early stage targets forms part of a dual track exploration strategy of near-mine resource growth and regional discovery, which in our view, should make for exciting news flow and justify the company reloading on a healthy drilling program beyond the current 50,000m program.
Project overview/refresher. The Pickle Crow project is located in the prolific Uchi Sub province in Ontario, a Tier 1 mining jurisdiction home to significant gold deposits including Red Lake (11.1Moz @ 7.2g/t), Musselwhite (2.5Moz @ 5.5g/t) and Madsen (2.1Moz @ 8.9g/t). The project is one of Canada’s highest-grade historical gold mines, having produced 1.5Moz @ 16.1g/t from high-grade narrow quartz veins. AUT controls 500km2 of highly prospective tenure with the current resource sitting within a ~5km2 footprint.
The project also boasts significant established infrastructure with three shafts, over 40km of underground development (proximal to the current resource) as well as an 80ktpa processing plant (never commissioned). The infrastructure provides potential for a staged start-up and early cash flow generation for a modest capital outlay.
We expect to see more news flow on the start-up options in FY23, and also note that hydropower lines running through the property offer potential access to a low-cost clean energy source.
Potential catalysts:
- Ongoing drill results and completion of 50,000m drill program — MarQ’22.
- Regional exploration results — JunQ’22.
- Permitting to Advanced Exploration licence — 2H’FY22.
- Option study outcomes to access UG for infill drilling — 2H’FY22.
- Pit optimisation studies — 2H’FY22.
Valuation and recommendation. We maintain our SPECULATIVE BUY recommendation and $0.25 price target, and also highlight the discount AUT (A$76/oz) trades on (Figure 5) vs its peers (A$176/oz) on a global grade weighted average EV/resource ounce metric.