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Whilst us posters have been extolling the value of the in-situ metal, what really matters is the free cash this project will generate. With this understanding, it is now clear that the most important document this autumn will be the PEA, and this should be the focus for investors (and as a result I will no longer be publishing the weekly Resource update). What was apparent from the conversation is that the Phoenix team are very excited by the return the project should generate.

To summarise, the company are getting very serious on project optimisation, and encourage investors to look at the economics of the Empire project, including the cash return, rather than focus solely on the resources. The BoD appear very confident that the project economics will demonstrate a most attractive return, which should see the company market value increase considerably.

Whilst the above concerns Empire, we should not forget that Phoenix also includes the Carlin style Navarre Creek gold zone, the silver in Red Star, the outlying Empire zones of Horseshoe, White Knob and Blue Bird Mines, plus the Cobalt zones of Redcastle and Bighorn.

I had a conversation with the Board Member today, and very interesting it was too, and the following essentially follows the flow of conversation. I found it immensely useful to receive a rather detailed explanation for how the BoD see the development of the business.

First we started on the outstanding news. The assay laboratory have said the results for both the Navarre Creek channel samples plus the Empire Open Pit Mine surface samples are imminent. These will be published in RNS’s without delay. Meanwhile the metallurgical work is going very well, and they promised to post pictures on Twitter of the first gold poured under laboratory conditions as soon as available. They are also nearing the end of the technical examination of the Red Star results, and should be in a position to post news shortly.

Now onto the more detailed discussion, and we started with a debate over the usefulness of the Resource Information in the context of the development of Phoenix. Phoenix as a new business has necessarily to develop its investment driven by the economics, and not by resources, important though they are, since it is a statement of the obvious that the 43-103 Resource statement does not tell the economics of mining such resources. As an example, you could own the world’s largest gold resource, but which may never be developed if the economics do not make sense. So, resources need to be put into context, and it is the PEA which will do that.

Project economics in mining operations are always a trade-off between grades and tonnage. On the one side we have the capital cost of building the production facilities, and the larger the facility, the higher the cost. But the grades (ie quality of the ore as defined by metal content) vary throughout the pit, and the higher the metals content, the lower the production costs. This summer, Phoenix drilled 32 holes into the gold zone to further enhance their knowledge, identifying the zones with the higher gold grades (noting that previous work was focussed on copper), which are now being used to work up a 10 year project economics. The intent from this approach is to throw off the cash to make a very attractive project, generating a large cash return to investors, whilst also allowing a large return to the business to go after the larger, deeper reserves. That does mean some of the resources will not be recovered in this 10 year period, but these may be recovered later, as the metals will still be there.

In terms of financial return, I do not have the company’s economic model, and neither do I have the skills to work out new DCF’s. I am sure there are other’s here who could estimate the impact of the above. But in any case, in a few weeks we will be getting back the updated resource from Hard Rock Consulting, which will be closely followed by the revised PEA. At that point, I suspect, finance will swiftly follow. This is now a project on adrenaline.

The above refers of course only to the Empire Open Pit Mine. We still have the Red Star silver mine, then we have the Navarre Creek Carlin style gold play, with results also due shortly. In the background are other areas with large gold potential in Empire, plus two cobalt potentials.

The company philosophy is to focus on getting fast track projects throwing off cash so they can finance exploration for the deep reserves. Whilst the present work has a narrow focus for the Empire open pit mine, the big potential is in the copper mine deep underground, which could be mammoth and on a world scale.

On a personal note, I bought in like several others, at 40p at listing. This share went down to 5.5p earlier this year, and yet we kept faith, knowing the geology, and trusting the BoD. Our trust continues, but the message I want to give is that from 4 years ago, with all the knowledge we now have, the share is pretty much derisked, so what a bargain everyone is getting buying in now, even at this small premium, for this company is worth a lot, lot more, we are so much further down the road (and anyone who wants to can buy me a pint for my research).

So, in terms of pricing, we should be near 140p very shortly, based on the now out of date WH Ireland Research. If we take into account all the news, such as increased resources, increased grades, improved gold recovery, lower capital costs, etc, then we could very well be doubling that price by year end. Then as production starts and the deep drilling gets going, who knows….

Good luck all!

I made a call to a director in Phoenix to catch up and found it really well worth the effort.

First for the delayed results. “We are hostage to the laboratory in getting the results back, which is totally out of our control, but could be back any day now”. For confirmation, this concerns the remaining samples from drilling in Red Star and Empire, plus surface samples from the Navarre Creek gold play. Red Star is looking quite complex with multiple veins, and they have a world expert looking at a structural interpretation.

Meanwhile the metallurgical pilot plant testing continues. Testing is not only on different ore types, but is now extended to look at other varieties of thiosulphate. They will report the results as soon as available, which should provide some additional newsflow into late October.

The data from the assays will pass to Hard Rock Consulting, who will work up and publish a new 43-101 Compliant Resource, hopefully for the end of September. This data, together with the metallurgical results will be plugged into a PEA, and I was told the expectation for this is very exciting, and with a smooth flow of results, the first draft is expected around the end of October.

Tons and grades drive mineral economics. The smaller the tonnage, the higher the grade needed, and vice versa. The Resources today are about 20 million tons M&I (excluding inferred). When they looked at heap leach they were looking at 3 million tons annual operation, with a mine life of about 7 years. They are now looking at higher grade so the logical thing to do is to have lower tonnage per annum, which should give lower capex, higher IRR and potentially more flexibility. Armed with the PEA they will be able to optimise the whole process, and lay out the road map, giving the optimum route to production.

The feeling inside the company is that Empire is creeping up unseen and unannounced by the professional watchers, eg by Christopher Ecclestone this week. Wake up Christopher (that’s me calling you, not the director)!!

I got real positive vibes from this call, and felt solid optimism. I know that the route to production is clearly mapped out, including finance, and with the recent results coming back, and with the increase in metals prices, we should see some outstanding results coming out of the PEA. If this project was positive before, just think of what it is going to be now!

Over on ADVFN we had a question which I've brought over here “Could we ever do a GGP style rise as the resources grow and growth ??? I was in their early and sold....Are our mines/acreage big enough for a $500m market cap in 5-10 years or am I dreaming???”

We have 2 separate projects presently on the table which are today giving the company value. The Empire Open Pit project is now in development phase with over 400 holes drilled with real good knowledge. This is no longer exploration, plus this has moved recently from being copper to be gold focused. Recent assays have shown excellent gold yields in easily mined shallow locations. Then we have Red Star, a silver/lead opportunity. Starting on Red Star, Hardman produced research in May showing the predicted DCF and fair value share price, with adjustment based on current silver price. Based on that alone (ie Red Star and current silver price), Phoenix should today be worth about 80p per share. For Empire, Phoenix produced updated resources (43-101 compliant) and entering today’s metal values into that, we get an in the ground value of just under $2 billion. Present metallurgical testwork (results expected by end October) should define how much of the gold we can recover, but first indications are that it is near 97%, which is phenomenal. Plus the process is environmentally sound. Giving a similar 7 year project life would suggest very high IRR’s. All these will come out in the PEA due in late October, but before that we can expect a very substantial re-rate of all the resources. We may also see Red Star and Empire coming together in value, which should give a most significant boost to the share price.

The above may see the company rise to be worth approx. £150 million for when finance is arranged (that’s about 200p per share), hopefully in early 2021. When production starts by end 2021 it may be worth double that.

But according to their Consultant geologist, the Empire mine is sitting on a massive deep resource, of which they have identified less than 1% to date. The intent of the BoD is to use self-generated profits to fund the deep exploration, that way maintaining control. We could expect that to be about 2 years away. And that is when the share price will really climb.

So, in terms of share price, we may see £150 million capital value in just over 6 months (sp 200p), and up to £5 to £10 within about 2-3 years.

Now for the rest. In addition to Empire and Red Star, we have Navarre Creek (a Carlin style gold play), and a number of other prospects close to Empire, plus two Cobalt prospects in the Idaho cobalt belt. Any valuation excludes those at the present time.

In recent weeks we’ve seen that there have been (some) large sellers. I’m presuming that these are most likely warrant sellers. These are people and more likely corporates, who have either invested at an early stage, and obtained a bonus (warrant), or a business who have taken a warrant in lieu of immediate payment.
I’ve gone back through the RNS’s since the listing of the company, to understand these warrants. There are a total of 7.61 million warrants, representing about 10% of the fully diluted share capital. I’ve made up my own little spread sheet and can see about 61% have been issued since listing. Prior to listing we can assume that they would have been issued close to par, and most likely individuals, so these can be excluded from the present sales. From the remaining 4.7 million about 1 million are at the present share price or above, and so again can be excluded. That leaves 3.7 million. We know from an RNS that 184,000 were exercised when the price was 21p, which leaves us 3.5million. Assuming that 50% of these will have been be sold, that will translate into a value of sales seen by us of approximately £500,000. That tells me the approximate ceiling on the number of shares which are being sold off in the present period, and which I feel is close to where we are. If you felt that more than 50% are being sold, you can adjust your guess accordingly. But I feel from this that we are near the end of the present bout of large sales. The number of shares is not elastic, and so when these warrants are gone, ladies and gentlemen, there are no more shares coming onto the market, and this share will rise, and rise fast. It’s that simple. And that excludes all the other news we are expect in in the coming weeks and months.
As an aside, I would also guess that the present cashing in of warrants will raise the order of £700,000 to the corporate kitty, which is not a bad thing at the moment, and which can be used to fund the present development programme.
We’ll also find out about warrants in a forthcoming RNS, which they are obliged to disclose, I believe.

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