Boyongan copper-gold discovery attracts market attention

A year or so ago, Philex Gold (PGI-V) was just another struggling producer barely noticed by investors. Although the company’s sole operation in the Philippines still isn’t turning a profit at current prices, impressive assay results from a new copper-gold discovery, on the island of Mindanao, are making analysts sit up and pay attention.

Dorothy Atkinson, IPO Capital’s senior mining analyst, recently issued a buy recommendation for Philex Gold, which now trades at about $1.60. “We believe the shares have excellent upside and have an initial target share price of $5,” she notes in a research report. “We believe this target can be exceeded if results continue to expand the discovery.”

Philex Gold’s Boyongan copper-gold discovery is in the Philippine province of Surigao del Norte. The original discovery was made during a prospecting program that revealed the presence of mineralized, quartz-stockwork porphyry boulders interpreted to have been derived from a blind copper-gold deposit. It is prime hunting ground for such targets, as compressive subduction arcs in northeastern Mindanao form part of the Circum-Pacific belt, which covers young intrusives with potential to host porphyry copper-gold deposits.

Two years ago, the company granted Anglo American (AU-N) the right to earn a 40% interest by funding exploration. This can be increased to 70% by completing a bankable feasibility study.

Last year’s drilling program intersected significant copper-gold mineralization in a multi-phase diorite porphyry intrusive. Hole 6 hit 365 metres grading 0.81% copper and 1.9 grams gold per tonne, followed by even more impressive results from holes 14 and 15 (drilled 300 metres northeast of hole 6), which intersected 388 metres of 1.07% copper and 2.03 grams gold and 393 metres of 1.58% copper and 2.39 grams gold, respectively.

“These exceptional grades are comparable to Grasberg,” Atkinson notes, referring to Freeport-McMoRan Copper & Gold’s huge copper-gold deposit in Irian Jaya, Indonesia. “Although at an early drill evaluation stage, Boyongan appears to be a large porphyry copper-gold deposit.”

With only 15 holes sunk to date, Atkinson says more drilling is required to define the deposit. “Mineralization is open, particularly to the northeast, where there is potential to expand the higher-grade tonnage, and at depth, giving further upside to the shares.”

Anglo American is expected to produce a preliminary resource estimate within the next year. Three drill rigs are currently testing the lateral and vertical extent of the mineralization.

Atkinson notes that the deposit is overlain by Quaternary cover, which extends to a depth of 57 metres in hole 6, and to 61 metres in hole 15. “This cover would allow the development of a starter pit,” she adds. “Alternatively, the deposit could be block-caved.”

On the metallurgical front, some challenges are expected from the oxidized upper part of the deposit, where copper minerals are malachite, azurite, chrysocola, cuprite, chalcocite, native copper, bornite, chalcopyrite, magnetite and hematite. With depth, the assemblage is dominantly sulphide, characterized by more benign hypogene chalcopyrite and bornite.

Philex Gold was formed when Philex Mining, the Philippine’s largest copper-gold producer, spun out its gold assets. Philex Mining owns 81.8% of Philex Gold’s 40.2-million issued shares.

In late 1999, Philex Gold’s shares were removed from the Toronto Stock Exchange and transferred to the Canadian Venture Exchange, where it still trades. The company has one mine, the underground Bulawan operation, which has reserves of 5.2 million tonnes grading 2.81 grams gold. Bulawan produced 52,416 oz. gold-equivalent last year at an average cash operating cost of US$255 per oz.

Philex reported a net loss of $11.3 million (or 27 per share) last year, compared with $15.9 million (40 per share) a year earlier. The company owes US$44 million to its parent company and Philippine banks.