Kalamazoo Resources Ltd (KZR)

Increase in resource at A-Zone

Kalamazoo (KZR) is a gold exploration and development company with projects located in Western Australia. Last week KZR announced a resource upgrade for its current development opportunity at A-Zone, lifting the grade and contained ounces. We view this as a positive outcome, particularly on grade, that has the potential to improve the economics of a potential development via the processing of ore at Minjar’s nearby plant. We view this optionality within KZR as a big positive which clearly distinguishes KZR from many of its peers. We maintain our Speculative Buy on KZR looking for completion of a mining study and agreement with Minjar on the processing of A-Zone material by Q3 this year.

Key Points

  • Minjar undertaking a mining study at their own risk: Minjar Gold Pty Ltd is conducting a mining study for A-Zone at their own cost and risk and has drilled an additional 75 RC and diamond holes for a total of 3,375m, testing the spatial location of the previously identified lodes and the tenor of the mineralisation. These holes have been added to the deposit drill database, upon which the resource estimate is based.
  • New resource significantly improved: The new resource estimate for the A-Zone deposit has lifted the grade and contained metal but with a reduction in tonnes. An additional 9% of metal is included in the new estimate with a significant +31% increase in grade and a -15% decrease in tonnes. In addition, 70% of the resource is now classified as Indicated and can be converted into reserves once economic parameters are applied.
  • First right processing agreement now includes Mixy: The A-Zone resource estimate is limited to the upper 100m of the deposit, deemed a reasonable depth for open pit extraction. Following the drill program, KZR and Minjar entered into a first right processing agreement for Minjar to treat A-Zone oxide ore plus higher grade Mixy ore. The addition of high grade Mixy ore to Minjar’s milling schedule would be attractive to Minjar in our view and result in higher cashflow for both companies should a development occur.
  • Mining would potentially fund a two-year exploration program: KZR has estimated a total of circa 25,000 ounces in the oxide portion of the resource. A hypothetical mining scenario involving 15,000 ozs of gold production at an operating margin of circa A$400 per oz, would realise approximately A$3.6m operating cashflow to KZR. In our view, this would be sufficient to cover all corporate costs and fund an active exploration program for between 18 months and two years, in our view.
  • Potential for base metal system discovery: KZR intend to model the base metal grades at A-Zone (not modelled for the gold A-Zone resource estimate described above) in the transitional and fresh material to derive vectors for further investigation. This will include copper, lead, zinc and silver modelling which may lead to studies on alteration, fluid flow and further geophysics to define the base metal potential at A-Zone. Further work is planned at the Conquistador base metal prospect, 15km north east along strike.

Disclosure and Disclaimer

RCAN1406

This Research report, accurately expresses the personal view of the Author. 

DJ Carmichael Pty Limited, members of the Research Team; including authors of this report, its directors and employees advise that they may hold securities, may have an interest in and/or earn brokerage and other benefits or advantages, either directly or indirectly from client transactions in stocks mentioned in this report. DJ Carmichael Pty Limited acted as Lead Manager in a pre-IPO round of funding and the IPO and was paid a fee for that service. Kalamazoo Resources Limited has engaged DJ Carmichael Pty Limited to act as corporate adviser and is paid a fee for that service. DJ Carmichael Pty Limited holds 697,500 restricted securities in Kalamazoo Resources Limited and 7.025m options in Kalamazoo Resources Limited. Kalamazoo Resources Limited paid the cost of a visit to the Snake Well project by representatives of DJ Carmichael Pty Limited in October 2016 valued at approximately $10,000. 

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The recommendation made in this report is valid for four weeks from the stated date of issue. If in the event another report has been constructed and released on Kalamazoo Resources Limited, the new recommendation supersedes this and therefore the recommendation in this report will become null and void.

Recommendation Definitions 

SPECULATIVE BUY – Potential 10% or more outperformance, high risk
BUY – Potential 10% or more outperformance
HOLD – Potential 10% underperformance to 10% over performance
SELL – Potential 10% or more underperformance
Period: During the forthcoming 12 months, at any time during that period and not necessarily just at the end of those 12 months. 

Stocks included in this report have their expected performance measured relative to the ASX All Ordinaries index. DJ Carmichael Pty Limited’s recommendation is made on the basis of absolute performance. Recommendations are adjusted accordingly as and when the index changes. 

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Paul Adams

Head of Research

Paul joined DJ Carmichael in 2006 as a Resource Analyst. Paul has an honours degree in Geology, is a member of the Australian Institute of Mining and Metallurgy and has 16 years experience in the mining industry in exploration, open pit, underground and operational roles, both in Australia and overseas. Before joining the company, he was Chief Geologist and Evaluations Manager at Placer Dome's Granny Smith mine. Paul has a Graduate Diploma in Applied Finance and Investment, fromthe Financial Services Institute of Australasia.