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De Grey Mining – towards a $1 billion gold mine in WA

De Grey Mining (ASX:DEG) is moving closer to its planned $1 billion-plus gold mine at the Mallina-Hemi gold discovery in Western Australia’s Pilbara. The company suspended its shares on Thursday to initiate a $300 million equity fundraising in two tranches.

The size of the fundraising effort is significant compared to the company’s modest market value of $1.7 billion, necessitating shareholder approval for the second tranche.

The shares will be issued at a confident price of $1.05 each, just under the last sale price of $1.15 on Wednesday. Additionally, the company anticipates requiring $800 million in debt and other financing to complete the mine, which now has an estimated total cost of $1.35 billion, including contingency and pre-mining stripping costs, and will process approximately 10 million tonnes of gold ore annually.

The Definitive Feasibility Study (DFS) indicates a payback period of less than two years, pre- or post-tax, assuming a gold price of $A2,700 per ounce. This is an increase from the Preliminary Feasibility Study (PFS), which used a figure of $A2,400 per ounce.

De Grey Mining stated in a presentation to the ASX that “the majority of institutions indicated the Project supports debt funding capacity of ~$800M,” which will be updated. This exceeds the $1.053 billion estimated in the pre-feasibility study for a mining operation based on the extensive Hemi deposit and smaller finds in the 180 kilometers of exploration areas.

The DFS focuses solely on the Hemi deposit, which has grown to around 121 million tonnes of ore (on a probable basis) at approximately 1.6 grams of gold per tonne, with a low All-In Sustaining Cost (AISC) estimated at less than $A1,300 per ounce. While it will be a single deposit mine, De Grey intends to explore other nearby areas of mineralisation, particularly through open-cut mining.

De Grey is 19.9% owned by Gold Road Resources, which will subscribe for enough shares to maintain its shareholding, contributing around $60 million to the fundraising effort. The company is undertaking a fully underwritten two-tranche Placement of 285,714,286 new shares to raise $300 million before costs.

The Placement will take place in two tranches: Tranche 1 aims to raise approximately $246.0 million without the need for shareholder approval, while Tranche 2 seeks to raise about $54.0 million, subject to requisite shareholder approval(s) expected to be sought in November 2023.

De Grey CEO Glenn Jardine stated, “Delivery of the Hemi DFS is a major milestone for the Company and sets a solid foundation from which the Company can proceed with confidence to the next stage of development of the Hemi Gold Project.” He emphasised the project’s de-risking and its location in the major mining services center of the Pilbara.

The fundraising announcement coincides with the release of a definitive feasibility study for the flagship Hemi resource at Mallina and an eventual Final Investment Decision. The company plans to use the funds to fast-track various project activities.

The DFS outlines average annual gold production and All-In Sustaining Cost (AISC) from the Hemi deposits alone, with a peak production of 570,000 ounces in year two. Probable ore reserves for Hemi alone have increased to 121 million tonnes, containing 6 million ounces of gold, with a high-confidence production profile underpinned by 99% Probable Ore Reserves from Hemi over a 12-year evaluation period.

De Grey Mining aims to complete the project financing process by mid-2024, with full construction activities beginning in the second half of 2024 and the first gold pour targeted for the second half of 2026.

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