Canaccord - increasing PTRaising Target Price Lucky John high-grade zone extended and new FW Zone discovery expands exploration model
Event: NewCastle Gold released the results of an additional drill hole from its 100% owned Castle Mountain project located in eastern California. The results of the recent release are centered on Oro Belle South. Discussion • The highlight intercept of the release was 31.19g/t Au over 29m, which included sub-interval of 93.95g/t Au over 9.1m (CMM-195). The intercept was successful in further extending the Lucky John high-grade zone an additional ~65m down dip from CMM-054 (30.31g/t Au over 33.3m), along the footwall of the projected OB-2 Fault Zone. • Of equal significance was the discovery of a new zone of mineralization (FW Zone) located within the underlying OB-2 footwall sequence (further down hole and outside of pit limits), which returned 2.26g/t Au over 126.5m. This intercept marks the first time that the host rock has been dominated by the underlying volcanic sequence, and opens up the potential for further resource growth proximal to the more commonly mineralized felsic volcanoclastic sequence. • Ongoing drilling by NewCastle continues to illustrate the vertical controls on mineralization which, along with ongoing targeted drilling, may further improve the overall grade of the project resource. We note that the grade of the reported intercepts within hole CMM-195 are significantly higher than that of the 2015 resource estimate grade of 0.70g/t Au (0.26g/t cut-off). • Note that hole CMM-195 was collared within the JSLA backfill material, and returned an a reported 0.41g/t Au over 68.6m (from surface). Overall, this further supports the potential to process the up to 18Mt of JSLA backfill material on a pre-production ROM leach pad. See our recent report, Turning waste into ore, for further colour. Impact: Positive. Ongoing drilling at Castle Mountain continues to highlight: 1) the project’s material exploration upside, and 2) the potential to modestly increase the project’s resource grade. However, we temper our positive outlook with regard to the recent results in the context of the project’s existing scale (CG Base Case: 142Koz/yr over 27yr). We note that further drilling will be required to determine the overall impact of localized high-grade zones, while in the context of resource growth, we highlight the addition of near-surface ounces as likely to be the most accretive in the near term (all else being equal).
Outlook: The Phase II definition/exploration drill program (44,500m, RC/core) is now complete, with the results from multiple holes now pending assay. NewCastle has more recently initiated a follow-up drill program to further delineate the Lucky John high-grade zone and to investigate the FW Zone outside of the current pit limits. Valuation: On the back of our recently revised forward curve pricing assumptions report, This time is different, we have increased our applied long-term gold price to US$1,382/ oz (from US$1,314/oz). We now derive an updated NAVPS of $1.80/sh (previously $1.49/sh), which includes non-operating and balance sheet adjustments, and a rounded target price of $1.75/sh (previously $1.50/sh). We maintain our SPECULATIVE BUY.