Roxgold reports maiden resource on Bagassi South’s QV1 target

Roxgold (TSXV: ROG; US-OTC: ROGFF) expects to become a junior producer in June when it pours the first gold from its Yaramoko project in Burkina Faso. In the meantime, the company is adding 200,000 ounces of gold to the project from a satellite target called QV1.

QV1 is situated on Yaramoko’s Bagassi South zone, about 1.8 km south of where the project’s 55 zone is forecast to deliver 99,500 oz. gold annually for seven years once in commercial production later this year.

At QV1, the inferred resource released today of 474,000 tonnes grading 13.13 grams gold per tonne at a cutoff grade of 5 grams gold per tonne, extends from surface down to a vertical depth of 300 metres, and remains open down plunge.

In addition to QV1, Roxgold has identified further resource expansion potential in the footwall zone, four to five metres from QV1, and in the QV Prime zone in the hanging wall. The footwall zone has an inferred resource of 10,000 oz. gold (474,000 tonnes grading 7.49 grams gold per tonne) and QV Prime contains 10,000 oz. gold (49,000 tonnes averaging 6.40 grams gold). The resource estimate used a US$1,200 per oz. gold price and adds up to 220,000 oz. of contained metal.

“We are looking to add further material down plunge at QV1 because it’s wide open,” John Dorward, Roxgold’s president and CEO says in an interview. “The last hole we drilled was 23 grams gold over 6.4 metres, so we will continue to see if we can extend it further to the south, and QV Prime is wide open for us to drill that out and add some ounces.”

Roxgold has been drilling the QV area for over a year. “We found a new zone that got quite a bit wider and had significant grade, so we started to see a lot of 10 metre intersections of 20 to 30 grams gold per tonne and that formed the basis of the resource today,” he explains. “Only a small number of holes have been drilled at QV Prime and the footwall zone, so it’s fairly early days there, but certainly an encouraging opportunity to find more ounces.”

The CEO notes that were the company to incorporate QV into the mine plan at the 55 zone, permitting would not be a big issue.

“We’d be looking to permit a very modest surface expression, most likely an underground operation, and there would be no tailings, no plant, no water storage facility,” he continues. “So from a permitting perspective it should be quite straightforward and we’ve got survey data from the ESIA. So while not currently included in the mine plan, it’s adjacent to it, and we have a lot of back-up data that we could use for that.”

Tara Hassan of Haywood Securities in Toronto commented in a research note that “with Roxgold delineating some of the highest grade rock in West Africa, a solid team in place to develop the project, and very attractive exploration upside remaining at the project,” she believes that the company “is a name to focus on even in a challenging gold price environment.”

Not only is Yaramoko’s high-grade mineralization “relatively continuous, with limited variability and good predictability,” she writes, but the grade and geometry of the project “allow for Roxgold to bump up against the desired threshold of 100,000 ounces per year while developing a small scale operation (750 tonnes per day, compared with average throughput for the region of nearly 6,000 tonnes per day).”

That’s important, she explains, because the result is limited pre-production capital requirements, a shorter development time line and lowers execution risk.

Dorward notes that the mine is on time and on budget with initial capex of $110.8 million( slightly higher than the feasibility study estimate of $106.5 million) but rose because management decided to add a large cap SAG mill, line the tailings dam, and moved to a full back-up power station so that it can run 100% of its power off its own power station. (It can also access the national grid.)

David Sadowski, a mining analyst at Raymond James, notes that Bagassi South “is showing very encouraging initial signs of contributing an incremental 20,000 to 30,000 oz. gold a year within the next two to three years.”

He also makes the point that so far the gold defined at Bagassi “is all within 300 metres of surface and should be accessible by a ramp,” and that the deposit “has geological characteristics similar to 55 Zone and thus we are optimistic on ease of blending.”

Moreover, the deposit is only “a short haul distance over flat ground” from the 55 zone and the mill could be expanded by about 50% to accommodate the additional feed “with only minor additions and modifications.” He estimates an upgrade of that sort would cost less than US$15 million.

The Vancouver-based analyst adds that Roxgold’s shares are trading at a 22% discount to the junior gold producer average on a price/net asset value and a 35% discount to the group on estimated cash flow for 2017.

“Despite some recent share price strength Roxgold continues to lag the group and should, as so many developers before it, see a market re-rating towards producer multiples ahead of mine completion in May and first gold pour in June.”

Not surprisingly, that’s a sentiment that Dorward shares.

“We’d like to be sitting at the high end of the valuation range by the end of the year and we believe we have the asset quality to do it.”

Sadowski, who says Roxgold is his top pick among gold developers, has a target price of $1.50 per share and a rating of “strong buy” on the stock.

At press time Roxgold’s shares were trading at $1.17 within a 52-week range of 54¢ and $1.19.