Canaccord commentsPreliminary water well results look promising
Event: NewCastle Gold reported preliminary results from its ongoing water supply drill program at its 100%-owned Castle Mountain project located in eastern California.
Discussion: • The results are centered on the recently completed 12-inch water well CMM-W-2, which was drilled to total depth of 1,973ft. An initial 5hr airlift test recorded an average pump rate of 169gpm, with rates locally exceeding 200gpm. NewCastle notes that this initial test was limited by compressor capacity, as such; the overall potential yield of the well may be higher than that recorded. • Drilling of water well CMM-W-1, located ~1.5km north of CMM-W-2, is currently in progress. Upon the completion of this second water well, NewCastle plans to perform development pump tests on both wells in order to characterize and forecast their longterm productive capacity. • Note that both CMM-W-1 and CMM-W-2 targeted highly fractured bedrock at depth within the footprint of the Castle Mountain project (Figure 2).
Impact: Positive. • Although follow-up pump testing will be required to determine the long-term capacity of water well CMM-W-2, we find the initial results encouraging. Overall, the ongoing water supply drill program continues to highlight fractured bedrock as a potential supplementary water source to that of the historic NW waterfield (420gpm). • With the initial results from CMM-W-2, NewCastle believes it now has the water capacity (400-600gpm) to support the restart of the Castle Mountain project in 2018. We note that this restart is centered on the pre-production ROM leach project (10,000-15,000tpd), and that additional water sources (200-400gpm) will be required to sustain the greater 9Mtpa operation, which is expected to be commissioned in 2021. • We note that while the results of the bedrock water source testing have been positive, the most prospective target remains the southern aquifer, for which preliminary hydrogeological studies estimate a target rate of 3,000gpm. Drill permitting for the southern aquifer remains ongoing.
Valuation: We have updated our valuation of NewCastle to reflect the company's recently completed $15M equity financing ($0.95/sh), in addition to CG's Q3 updated commodity price forecast (long-term US$1,365/oz Au, previously US$1,382/oz). Through these adjustments, we derive an updated NAVPS of $1.74/sh, which supports our current target price of $1.75/sh and our SPECULATIVE BUY rating.