Newcore’s best Nyam hit points to larger Enchi mine

Newcore Gold (TSXV: NCAU; US-OTC: NCAUF) has assayed the strongest interval yet below the reserve pit at its Enchi gold project in Ghana, adding potential for a larger mine than the company’s June prefeasibility study outlined.

Hole NBDD088 cut 25.3 metres grading 3.67 grams gold per tonne from 307.7 metres downhole, Newcore said Wednesday. NBDD091 returned 18 metres at 1.26 grams from 300 metres, including 9 metres at 2.31 grams from the same depth. Enchi lies in southwestern Ghana, 290 km west of Accra.

“We maintain our view that Enchi’s metal endowment will ultimately support a larger scale mining operation than that outlined in the project’s recently released PFS,” Haywood Securities analysts Marcus Giannini said in a note Wednesday.

The result strengthens a depth-growth case emerging across several Enchi deposits, rather than adding one isolated hit at the Nyam target. This year’s drilling was excluded from the resource and mine study, leaving Newcore scope to expand the pit limits and add higher-grade feed where the planned operation carries its strongest grades and output.

At 29¢ apiece, Newcore’s Toronto-listed shares were flat in early afternoon trading Wednesday, after losing nearly half their value over the past 12 months. The stock has traded in a range between 28¢ and 92¢ over the period. Newcore now has a market capitalization of $82.5 million (US$58.5 million).

Depth case

The five diamond holes whose results were released Wednesday totalled 1,489 metres across four sections spanning 410 metres. All five cut gold, with NBDD088 drilled just beneath the pit shell that constrains the current reserve. Reported intervals are core lengths, with true widths estimated at 75% to 85%, the company said.

“Importantly, drilling is encountering wide zones of mineralization well above the currently defined resource grade, continuing to support the opportunity to prove out higher-grade gold in future economic studies,” CEO Luke Alexander said in the company’s statement.

The deepest drilling reached 275 metres vertically, while Nyam’s holes average only 100 metres. Haywood said the shallow test depth leaves room to reshape proposed pits and bring more higher-grade material into the mine plan.

A possible comparable for Enchi is Asante Gold’s (TSXV: ASE; US-OTC: ASGOF) Chirano mine, 50 km northeast of Enchi, where mining extends more than 800 metres below surface, Haywood says. Enchi shares some geological controls with Chirano, although more work is needed to prove the comparison, the brokerage cautions.

Newcore has reported assays from 46,140 metres of its 80,000-metre program. Four rigs are testing shallow areas for resource conversion and deeper zones for higher-grade extensions.

Mine plan

The June study outlined a 5.5-million-tonne-per-year open pit and mill producing about 953,000 oz. over 9.3 years. It forecast average annual output of 104,000 oz., rising to about 129,000 oz. during the first three years as the processed grade averages 0.8 gram gold per tonne.

At a gold price of US$3,800 per oz., the study estimated an after-tax net present value of US$496 million at a 5% discount rate, a 37% internal rate of return and a 1.6-year payback. Initial construction costs were pegged at US$351 million.

Nyam holds 13.5 million indicated tonnes grading 0.66 gram gold per tonne for 287,000 oz. and 5.5 million inferred tonnes at 0.68 gram for 120,000 ounces. Enchi’s probable reserves total 51.3 million tonnes grading 0.64 gram for 1.06 million ounces.

Only the first 28,000 metres of the current program fed the March resource estimate underpinning the study. Newcore plans to assess later drilling in future resource estimates and economic work.

Market view

Newcore trades at 0.14 times Haywood’s estimated net asset value, compared with 0.44 times for selected peers. Its enterprise value of US$28 per resource ounce compares with a peer average of US$213, a gap Haywood linked partly to higher costs in the June study and weakness in gold equities.

The company held $18.8 million in cash and no debt, according to Haywood. The broker expects Newcore to seek a Ghanaian mining lease before year-end now that it has completed the study and declared a reserve.

Haywood participated in a Newcore share offering during the past year. It or its affiliates held at least 1% of the company.