My take on recent news Given the general silence and rather poor share price performance after the long awaited Hercules drill results I figured I'd give my take on the drill results and new company presentation, hoping to start up some discussion. I reached out to CFO David Splett as well to get some insights.
With respect to Hercules drill results:
- As for the results being late: feedback from David was that one hand the labs were simply exceptionally slow, and on the other hand the analysis requested for those assays was much more extensive than what is being requested for Moss.
- I also noted that the initial press releases for the Hercules drill program all indicated 18 holes for 6750m, while 28 holes are now reported for 7320m, so somewhere along the way the design of the drill program was modified.
- In my reading the intent of the drill program was mainly to identify a possible high grade core close to surface to eventually serve as a starter maiden resource, and to possibly kick off a mine. A bit similar to what has been done for Moss.
- The drilling at the Hercules target was focused on the area highlighted in this press release: https://www.eclipsegoldmining.com/news-media/news/eclipse-gold-mining-identifies-potential-high-grade-core-at-hercules-target/ That appears to have been confirmed by holes 31/37/38 with some very solid grades at surface or very close to surface, which would be relevant to kickstart a mine with good economics. Interestingly the main highlighted hole 38 is on the northern boundary of the target area, with little to no drilling testing beyond it. I imagine a next phase of drilling would further try to outline this target.
- At Cliffs the grades appear lower near surface but with some higher grade hits at depth. All holes returned consistent results though with significant near-surface intercepts of low grade material.
- The one hole between Hercules and Cliffs in my opinion is also very interesting, given that it seems to confirm mineralization between the two targets, in line with the model of the system. Would hope/expect to see some more testing of that area in an upcoming drill program.
- I don't know what everybody was expecting but these do seem to be very solid results that allow for both a further focus to identify a maiden resource, as well as expanding the known target areas. I guess the very long wait and rather unexpected merger cooled down the market enthusiasm.
- David Splett indicated a spring drill program would be announced soon. Previously statements were also made that drilling would recommence in April (after wintertime).
With respect to the new company presentation & Moss:
- As a pre-merger NEE shareholder I have to say I was slightly annoyed by the predominant focus on Hercules in the company presentation. The initial main catalyst in my opinion is still coming from the Moss exploration resource update. The Ruth vein drill results are hardly highlighted in the company presentation.
- The second thing that struck me was the production target, which is lower than production of previous targets. I reached out to David on that topic, and the reason is they are still executing the Mining Plan based on the initial 2017 resource. The focus for the upcoming quarters is shifting to the west pit where grades are lower (0.42ish based on the mine plan year 5).
- David did however also mention that the crushing throughput has been significantly increased by virtue of the crush size increase and they are now regularly averaging 10.000tpd on a weekly basis. That is partly offsetting the lower grades, but still production is expected to be lower than previous quarters.
- The main point he also brought up is that a new Mine Plan will be made over summer that incorporates the resource update. They are doing infill drilling now. I believe in the past a possibility was highlighted to blend the higher grade hits from the Ruth vein with the sea of low grade ore from the gold tower/bridge zones as well as to unify the center & west pit allowing for a more consistent production level.
- So while production may be somewhat lower the coming quarters this year, there is a significant catalyst over summer, both from production targets and the increase in the resource itself. The initial target last year was to at least double the resource, but given the several extensions of the drill program, given the high grade hits, and given the fact they're also highlighting Moss as a multimillion ounce deposit in the company presentation I imagine/hope we may see a more significant resource increase than that.
- Costs should be down as well, given the new mining contractor and the crush size increase (although I believe they mentioned investments in a new leach pad extension were also planned this year). I'm curious to see the costs for the quarter ending December, which have yet to be reported. On that note, according to David the financial report is later because of the change of year-end for financial reporting. The upcoming report is an annual report given the financial year now ends in December, and not a quarterly report.
- What I am also curious about is a timeline for graduation to the senior exchanges and finally some increased analyst coverage. Sell-side analyst coverage was something that Ken highlighted in one of his last presentations on the merger. That was one of the advantages/goals of the financing, given that it was a brokered financing supported by 5 broker firms. When that happens I'm very curious to see price targets. Let's not forget management themselves bought in significantly around 50c both in the public market (of eclipse, pre-merger), as well as by partaking in the financing itself. Meanwhile we have sunk to ~37c.
On a last note, I hope to see an actual presentation of the company presentation soon, hopefully with some possibility for Q&A.
What are your thoughts?