This is a first for WorldOfWallstreet: an interview with a mining CEO, Bob McNeilCEO of New Guinea Gold corporation (NGG.V). I'll be following up this interview shortly with an article giving my valuation of New Guinea Gold based on the Imwauna project discussed below as well as the outlook for the currently producing Sinivit gold mine.
Bob McNeil, BSc (Hons), MSc. F AustlMM, is Chairman and CEO of New Guinea Gold corporation, a Jr gold producer with significant exploration upside. He is also co-founder and Managing Director of MACMIN NL, Chairman of Frontier Resources Ltd (ASX), and non-executive Chairman and director of Coppermoly Ltd (ASX). He identified and applied for projects in PNG and Tasmania, then sought and obtained financial support to establish New Guine Gold. During 40 years industry experience Mr.McNeil has amassed extensive managerial exploration and mining expertise with multinational mining and oil companies, both in Australia, USA and the Asia Pacific region. Early in his career he was directly associated with the Juno and Warrego mine discoveries at Tennant Creek in Australia. He was Regional Exploration Manager for Unocal, based in Tucson, Arizona and gained specific expertise in the search for porphyry copper deposits. In 1980, Mr McNeil transfered to PNG to establish and manage Exxon's PNG mineral exploration group, where he held the position of General Manager from 1980 to 1986.
Monty High: Ok, let's get right into it. New Guinea Gold has had some distractions lately and the Imwauna Gold project hasn't gotten much attention. Could you explain how Imwauna fits into New Guinea Gold's future?
Boc McNeil: NGG anticipates that Imwauna will become its premier project. It occurs in the same geological zone and is along the same structural trend as Placer Dome’s 4mm oz Misima mine and NGG has a resource target of 2 to 4 mm ounces for the project.
At Imwauna, on Normanby Island, the Company plans to drill an additional 10,000 metres in 2009. There is currently one diamond core rig on site, a second will be added in April and a third in June. In June ‘08, New Guinea Gold announced an Inferred Mineral Resource of 1.8 million tonnes at 12.2 g/t gold and 20 g/t silver for contained metal of 706,000 ozs gold and 1,160,000 ozs silver has been estimated for the Imwauna Project.
New Guinea Gold is conducting a Preliminary Assessment and subject to a positive result from that study, mine construction could commence in late 2010 with a possible gold production of the order of 70,000 to 100,000 ozs/year in 2011. The resource is likely to be largely open pittable. The viability of this possible production including the capital cost of the project, will be indicated in the Preliminary Assessment.
MontyHigh: 12.2 g/t seems to be really high-grade ore for an open pittable resource. Has the metallurgy been done to characterize the kind of processing required for this ore? Is it an oxide ore that is heap leachable or will it require a mill?
Boc McNeil: Yes 12.2 g/t is quite high grade – for example we are profitable mining 5 to 6 g/t at Sinivit. Yes some preliminary metallurgy has been done. The scale of the operation will dictate having a mill – leaching that quantity of ore would take up too much surface area. The potential cost of the whole process – capital (including mill etc) will be part of the preliminary assessment (ie pre-feasibility) study.
MontyHigh: I don't get it. There are lots of heap leach operations in Mexico producing more than 100K oz / year. What's different about Imwauna?
Boc McNeil: The mineralization is low sufiphidation, epithermal style – more efficient to install a mill on this instance.
MontyHigh: Ok, let's get back to the 2009 drilling. For perspective, how does the 10k meters of drilling planned for 2009 compare to the 2008's drilling? Can you estimate the fraction of that drilling that will be focused on increasing the mineralized tonnes versus what will be focused on upgrading inferred oz to a measured and indicated status? Is there any kind of timetable for the next Imwauna NI43-101? Finally, the 12 g/t grade is good enough to support underground mining. Are there plans to drill deeper to determine how far the deposit extends depth-wise?
Boc McNeil: It’s approximately double the drilling done in 2008. About 75% will be focused on increasing the size of the resource, the balance on upgrading the existing resource.
If sufficient new ounces are discovered, the prelim assessment will contain an updated 43-101.
Even then, drilling will still need to go on for two to three years to determine the full lateral and depth extension. Surface work has discovered gold over about a 10 km area, and its possible the deposit may connect with the gold mineralization at Weioko (owned by NGG) which is about 12 km’s NE.
MontyHigh: So drilling to find how deep it goes is not a priority for 2009.
Boc McNeil: Yes – its’ a vein swarm system and tracing individual veins to depth is time consuming and expensive, and likely to produce fewer ounces short term than shallow drilling.
MontyHigh: Ok, lets summarize the drilling situation for Imwauna. In July of 2008 an NI43-101 technical report came out, based on 138 drill holes, putting the Imwauna Inferred Mineral Resource, at that time of 1,800,000 tonnes at 12.2g/t gold for contained metal 706,000 ozs gold. This is very high-grade ore. Since then drilling continued in 2008 and the drilling is planned to continue at an accelerated pace 2009 aimed at increasing the size of the resource and upgrading the existing resource. Fully drilling out the project will take two or three years, but mine construction could being earlier. The resource target is 2 to 4 million oz.
MontyHigh: Great, let's move onto valuing this project. Have you been comparing Imwauna to other projects of similar size? Can you name a few of those comparable projects?
Bob McNeil: The model for the mine Placer Dome’s Misima mine which produced 3.7 mm ounces of gold plus silver. Since it was owned first by PD and then Barrick, no independent valuations exist. There are no similar open-pit projects operating in PNG, and South American projects have a different risk profile.
The purpose of the pre-feas is to put a value on the deposit, considering mining and capital costs reserves and resources etc etc, so investors will need to wait for that for a more precise definition of value. In the meantime, in all the M&A activity of 2008, exploration ounces (depending on location and “quality”) were valued at between $35 and $125 per ounce and production ounces at between $150 and 300. On the basis of those stats, since the Imwauna ounces are high-grade, if there were a million exploration ounces next year at this time, the mine would be worth $80 to $120mm. After development, which might cost $40-50mm, a million ounce mine would be worth approximately another 50 to 100%.
MontyHigh: On that note, I was hoping you would comment on the fairly recent Orezone acquisition which took place in December. They had 3 million oz of reserves and were valued at 45$/reserve oz. It seems pretty comparable, based on size to what New Guinea Gold is shooting for with Imwauna. The main difference that I see is the grade. Orezone was heap-leachable but at 1.65 g/tonne. Imwauna is close to 8 times higher grade, but needing a mill. Can you comment on how valuable an Imwauna oz might be compared to an Orezone oz and have their been an open-pittable, million oz or more acquisitions recently with grades comparable to Imwauna? I'm not aware of any with grades higher than 3 g/tonne. If Imwauna is in a class of its own, might it command a premium to other lower-grade exploration projects?
Bob McNeil: Good question and the answer is grade makes a very big difference – higher grade means less ore to be processed and therefore lower cash costs and therefore potentially a “premium price” per exploration ounce.
Orezones assets are in West Africa which carries a different level of political risk than PNG. Fortunately, IAM Gold has assets in Africa and is familiar with the ground. Also look at the timing – the junior mining sector was cratering in December and getting new financing was/is very tough.
That’s why, while it’s interesting to look at other transactions – they are only a guideline. You need to look at the values generated by the preliminary assessment so reach a definitive conclusion.
MontyHigh: Ok, this may be the last question. Can you name two or three recent deals where an advanced development project was sold that are more comparable than the Orezone deal?
Bob McNeil: Don’t know of anything – remember you’re talking about 1+mm (up to possibly 5 mm) highgrade ounces, near the sea (no tailing issues) in PNG, low cost labour, stable democracy, resource based economy where the government is asking to speed up development and where barrack and RTZ are already successfully mining. The only other recent highgrade transaction that I’m aware of was Aurelian, (7.2 g/t) where Kinross paid $86 per ounce for a much larger 13mm oz deposit. But That was in Equador where the government has frozen development pending a review of the mining act. Will check and see. In the meantime, can you send me a complete version of what you have so Bob and I can check it today?
MontyHigh: So to summarize, Imwauna looks like a very valuable gold deposit, but at this time its hard to put a dollar value on what it is going to provide New Guinea Gold shareholders. This is because the number of oz and their overall grade are yet to be determined and more especially because the market price for this kind of deposit is not all that clear. It seems that the Orezone deal, assuming the price of gold holds up, provides a lower bound (on a price per oz basis), but the value could be as much as two or three times that. I would like to thank your help in providing World Of Wallstreet readers with a better understanding of this project.