Disclosure: Western Exploration Inc. has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.
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Highlights
Since our previous report in January 2023, WEX has completed a step-out drill program at the Aura gold-silver project in Nevada. We believe initial results indicate potential for resource expansion.
The Aura property hosts three deposits (Doby George, Wood Gulch, and Gravel Creek) with indicated resources totalling 652 Koz gold equivalent (“AuEq”), and inferred resources totaling 665 Koz. Doby George hosts near-surface/high-grade oxide resources, while Gravel Creek hosts underground/high-grade sulfide resources. Agnico Eagle (NYSE: AEM, 16%) is a major shareholder.
Assay from two holes, located 140 m to 250 m east of the known Gravel Creek resource, returned bonanza gold-silver grades of up to 257 g/t Au, and 2,800 g/t Ag.
At Doby George, preliminary metallurgical heap leach tests confirmed high-grade oxide mineralization, and an average recovery of 69.3%, supporting our previous estimate of 70%.
Management is planning resource updates for Gravel Creek, and Doby George, followed by a Preliminary Feasibility Study (PFS) for Doby George by Q4-2024/Q1- 2025. We believe Doby George can be advanced to production quickly, with a low initial CAPEX (<$50M). Based on its existing resource, we envision the project operating for nine years (40-50 Koz/year), with a relatively low OPEX ($800/oz).
We maintain a positive outlook on gold in light of the anticipated rate cuts by the Fed, and as we anticipate inflation will remain above its historic average in 2024.
M&A activities in the junior gold sector are on the rise. Recent transactions involved Dundee Precious Metals’s (TSX:DPM) acquisition of Osino Resources (TSXV: OSI) for C$215M, Silvercorp Metals’s (TSX: SVM) acquisition of Orecorp (ASX: ORR) for C$186M, and Zhaojin Mining’s (SEHK: 1818) acquisition of Tietto Minerals (ASX: TIE) for C$422M. We estimate an average price of C$82/oz for these deals. WEX is trading at just C$28/oz, reflecting a 66% discount.
Upcoming catalysts include metallurgical test results, resource expansion drilling, and resource updates.
Aura Gold-Silver Project, Nevada
Location Map
Nevada is the fifth largest gold producer in the world
Aura is located 32 km north of First Majestic Silver’s (NYSE: AG) Jerritt Canyon mine
Excellent infrastructure in place including access to highways, water, and electricity
Resources are spread across three high-grade gold deposits, with indicated resources totaling 652 Koz AuEq, and inferred resources totaling 665 Koz
Gravel Creek and Wood Gulch are located 8 km from Doby George
Source: Company
Doby George and Wood Gulch have potential for open-pit operations, while Gravel Creek has potential for underground operations
At Doby George, preliminary metallurgical heap leach tests confirmed high-grade oxide mineralization, and an average recovery of 69.3%, supporting our previous estimate of 70%.
Doby George - Metallurgical Holes
Source: Company
The resource at Doby George is amenable to heap leach processing, indicating potential for relatively low OPEX/CAPEX
Oxidized mineralization extends 150 to 200 m below surface
Two step-out holes, drilled 140 m to 250 m northeast of the Gravel Creek resource area, returned bonanza gold-silver grades including 257 g/t Au, and 1,655 g/t Ag (Hole: WG457), and 35 g/t Au, and 2,800 g/t Ag (Hole: WG456).
2023 Drilling Highlights (Gravel Creek)
Source: Company
Drilling returned bonanza gold-silver grades, delineating a 0.55 km x 0.35 km area of epithermal mineralization adjacent to the Gravel Creek resource area, implying resource expansion potential
Gravel Creek (600 m along strike and >400 m in depth) hosts 52% of the project’s resource estimate
Upcoming Catalysts
Source: Company
Multiple Catalysts
Financials
$1.2M in working capital
We anticipate a C$3M+ equity raise this year
Source: FRC/Company
FRC Valuation and Rating
Recent M&A transactions were priced at an average of C$82/oz
Source: FRC/ S&P Capital IQ/ Various
Gold juniors are trading at C$41/oz, based on 100% of M&I + 50% of inferred resources
WEX is trading at C$28/oz, reflecting a 31% discount
Applying the sector average EV/oz of C$41/oz (previously C$60/oz) to WEX’s resources, we arrived at a comparables valuation of C$1.16/share (previously C$1.50/share)
DCF Valuation
Our DCF valuation declined from C$3.48 to C$2.98/share primarily due to share dilution since our previous report
Our models are highly sensitive to gold prices and discount rates
We are reiterating our BUY rating, and adjusting our fair value estimate from C$3.48 to C$2.07/share (the average of our DCF and comparables valuation). Upcoming catalysts include metallurgical test results, resource expansion drilling, and resource updates. We believe WEX stands out with high-grade projects, a strong management/board, and the backing of Agnico Eagle.
Risks
We believe the company is exposed to the following key risks (not exhaustive):
- The value of the company is dependent on gold prices
- Exploration and development
- Access to capital and potential for share dilution
- Yet to complete a NI 43-101 compliant economic study
