With the gold price at an all-time record of $US2354 per ounce (/oz) and breaching new highs almost every day, many investors are left scratching their heads when they look at their gold stock portfolios.
The big question is: why are so many gold companies lagging the rally in the shiny metal – especially earlier stage projects at the smaller end of town?
Its supply and demand – of capital
The answer to why things have been so difficult for most juniors can be found in the demand and supply of money rather than gold itself.
Juniors need capital to move towards production. To do this, they depend on access to primary capital markets (new share issues) which has been difficult to say the least, putting a heavy drag on valuations.
This might have created a negative feedback loop in the secondary market (traded stocks), where many investors have thrown in the towel, exacerbating the weight on prices.
Is Felix Gold (ASX: FXG) a nugget in the rubble?
This setup can create opportunities for investors who can sort through the rubble and find high-quality and well managed companies that can go a long way without needing too much new money.
One of those companies might be ASX-listed Felix Gold (ASX:FXG), the Alaska-based gold explorer funded and supported by MDF Global and its board of world renowned geologists and mining operators including Rio Tinto’s former COO of North America.
Recently, Felix Gold announced its strategies for resource expansion and economic studies in a premier gold jurisdiction, strategically located near a Tier-1 gold mine in need of ore.
The transition from exploration to resource expansion and economic studies, marks a clear pathway for ongoing asset progression and value increase, and could offer investors a promising opportunity.
“These projects are already demonstrating economic profiles that could rival or surpass recent mines supplying the Tier-1 gold mine,” Felix Gold executive director Joe Webb said.
Felix Gold is currently valued at under $29/oz based on one project, with part of their resource containing an substantial 6.2 grams per tonne (g/t).
The imminent maiden resource for its flagship NW Array is also worth paying attention to, with factors such as high recoveries and shallow oxide mineralisation shaping it up to have robust economics, potentially laying the groundwork for the company to execute a deal with its neighbour Kinross and their ore-hungry mill.
Founded, funded and supported by MDF’s world-renowned mining veterans
Felix was sourced and incubated by its largest investor, MDF Global, which specialises in discovering, funding and progressing Tier-1 metals deposits. The MDF board features world-leading geologists credited with discoveries worth more than $100 billion in planned and actual production.
Being part of MDF’s portfolio, Felix benefits from support not typically available to juniors. This includes the geological expertise of MDF’s world renowned geologists but also the commercial expertise including the former Head of Rio Tinto’s North America Operations.
Importantly, MDF can also provide ongoing funding – as it has recently demonstrated for Felix – and offer its investor network which includes some of Australia’s best known mining billionaires.
Location, location, location
Felix has multiple advantages when it comes to location. It sits in the prolific Tintina Gold Belt featuring several 10 million-ounce-plus (Moz+) deposits operated by mining giants such as Barrick, Northern Star and Kinross.
Felix tenements are located just a few kilometres from Alaska’s second largest city, Fairbanks, which offers significant mining infrastructure, and Alaska itself is a world-class mining jurisdiction, ranking fourth in the Fraser Institute’s 2021 Investment Attractiveness Index.
But currently the most interesting detail is the proximity to an existing Kinross mine that is running out of feed. This setup presents a near-term, low capex development pathway.
Kinross Gold Corp (NYSE: KGC, $US8 billion market cap) owns the Fort Knox Mine which is not just the largest gold producer in the history of Alaska, but also conveniently Felix Gold’s neighbour.
Fort Knox’ mine life is expected to extend to only 2027, with its 16 million tonnes per annum (Mtpa) mill already operating at just 55 per cent of capacity.
To keep the mill running Kinross has been actively involved in mergers and acquisitions in the region. This creates an interesting angle for Felix – a key element of MDF’s initial investment thesis.
Felix’s Focus Project 1: Grant Mine
Grant Mine has an existing resource of 364koz @ 1.95g/t Au, including a high grade underground resource of 136koz @ 6.2g/t Au.
Given the Kinross angle, it is interesting to look at Grant’s characteristics in the context of another deposit already mined by Kinross at Fort Knox – Manh Choh.
Back in 2020, Kinross showed just how serious they were about consolidating the best deposits in the region, when they forked out $US93.7 million to acquire 70 per cent of Manh Choh.
The project is expected to generate an extra 640koz of gold production for Kinross over the life of the mine. In preparation for production, a 400km transportation system was connected – which now goes almost straight past Felix’s Grant Mine.
In preparation for production, a 400km transportation system was connected – which now goes almost straight past Felix’s Grant Mine.
The cost of bringing Manh Choh online came to a total capital expenditure of nearly $US200 million. The deposit’s acquisition price paid by Kinross implies a $167.06/oz valuation.
For context, at the current Felix share price and counting only its existing 364,000oz resource of Grant, Felix Gold as a whole is valued at less than $29/oz.
An expansion of the Grant resource with a very limited amount of capital could bring this further down, leaving significant potential upside for shareholders. And that still ignores the imminent maiden resource of its other key project – North West Array.
Felix’s Focus Project 2: North West Array
Felix’s North-West (NW) Array project is already close to being development-ready with a maiden resource imminent.
Felix has drilled more than 20,000m at NW Array, with some of their standout assays intercepting 100.5m @ 1.14g/t gold from 21.3m, including 47m @ 1.7g/t gold from 38.1m, 70.1m @ 1.6g/t Au from 6.1m, including 7.6m @ 6.4g/t Au from 21.3m, as well as 54.9m @ 1.80g/t Au from 1.5m, including 30.5m @ 3.02g/t Au from 7.6m and 4.6m @ 7.10g/t Au from 19.8m.
Recent metallurgy results for NW Array revealed an average of 89 per cent gold recoveries down to a 100m in depth, which was ascertained from thirty samples (27 oxide and three fresh) that were tested by ALS in Perth using the 24-hour bottle roll leach method.
This critical announcement confirms that the gold at NW Array is free milling and recoverable using cyanide, and recoveries reached as high as 94.5 per cent. For context, the current recovery of Fort Knox averages around 80 per cent.
Both the grade and the near-surface nature of NW Array’s mineralisation indicate a potential low cost open-pitable resource. Additionally, the identification of further high-grade north-east trending zones continues to establish the trend Felix has been exploring, while extending it in width and length.
To really understand how interesting NW Array may be for Kinross, investors only have to look a few kilometres down the road at the Gil Sourdough deposit which is currently mined by Kinross at Fort Knox.
Gil Sourdough proved to be a vital resource to the Fort Knox mine, allowing Kinross to keep the operation running for a few more years at a reasonable capacity.
The project features 29.5Mt of indicated resource at 0.56g/t for over 530,000oz. This grade is towards the bottom end of the range of NW Array’s initial exploration target 76-95Mt at 0.4-1.1 g/t gold – of which 270–890,000oz is stored in the Southern Zone where Felix has not only been drilling, but consistently intersecting significantly higher grades.
This is why investors might want to pay close attention to the maiden resource which Felix is expecting to release for NW Array in the coming weeks.
At a value inflection point?
With these two projects in hand and a hungry mill next door, Felix might be sitting at a value inflection point on two dimensions, with the first being the potential expansion of their existing resource from 364,000oz to up to 2Moz with the use of very limited capital for exploration.
The second is turning both projects from exploration to development opportunities, with one obvious angle being the proximity to the nearby Fort Knox Mine which is running out of feed.
Considering the deals Kinross has done in the region to keep its mill fed, both of Felix’s projects appear to be meeting the criteria in terms of size, metallurgy, shallowness, distance and grade.
With both of these catalysts on the table, 2024 could be an interesting year for Felix and its investors.
Book in to join the investor briefing with Felix executive director Joe Webb where he will explain the company’s recent metallurgy results, plans for resource expansion and potential to move to development.
