Company Overview: Dacian Gold Limited is a gold exploration and development company. The Company's principal activities include mineral exploration and development activities at its Mt Morgans Gold Project (MMGP) in Western Australia. MMGP is located over 20 kilometers west of Laverton, being approximately 850 kilometers northeast of Perth in Western Australia. The project area is a 520 square kilometer contiguous tenement package comprising granted mining licenses. MMGP includes various deposits, such as Westralia Deposit, Allanson Deposit, Beresford Deposit and Jupiter Deposit. The Jupiter Deposit occurs in the eastern half of the MMGP, being over 20 kilometers east-south-east of the Westralia Deposit. The Beresford mineralization is located at the south end of the Westralia ore system. The Cameron Well Prospect is located over five kilometers east of Westralia. The Callisto Prospect lies over six kilometers south of the Jupiter Deposit and over seven kilometers west of the Wallaby gold deposit.


DCN Details

Dacian Gold Ltd (ASX: DCN) seems to represent a striking investment opportunity considering the exploration upside and progress towards production at Mt Morgans as a de-risking factor with Beresford underground tracking well ahead of schedule. Given the developments, the group can transform from a mere exploration/development play into a fully-fledged gold producer.

Mt Morgans project is on time and on track for gold production by March 2018: Dacian had spent over $62 million during the September quarter 2017 mainly for their Mt Morgans project (MMGP). The group believes that the project is on time and on budget, and the company is on target for making the gold production by March 2018, which is less than 5 months away. The company has constructed more than 50% of the new 2.5Mtpa treatment facility while maintaining an aggressive exploration drilling program at the MMGP during the project’s construction with a $1 million monthly exploration budget. Moreover, during the September quarter, the group reported a major milestone with the mining of the first ore from Beresford. This mining was achieved four weeks ahead of schedule. The mine advance is 541m ahead of Feasibility Study schedule. It is worth noting that the underground mining commenced at Beresford in mid?May 2017. The highly sulphidised nature of the ore hosting banded iron formation (BIF) is evident in the photograph of the mine, as is the highly competent hangingwall basalt observed. Furthermore, all the 400 rooms at the Mt Morgans accommodation village are fully operational. During the quarter, the company took delivery of the 3.5m long and 8.5m diameter SAG mill. Meanwhile, the group has signed the Gas Transportation Agreement (GTA) including construction of a 4km gas pipeline lateral, with the APA Group for gas transport. The term of the GTA with APA is for up to 10 years for a total contract sum of over A$57 million. Additionally, the exploration continues to confirm excellent growth opportunity. Mt Morgans has 3.3Moz Mineral Resource base with 2.3m @ 311.3g/t Au intersected at Cameron Well, 3m @ 28.3g/t Au at Allanson Oxide and 15m @ 4.1g/t Au at Maxwells Oxide plus confirmation of shallow oxide mineralisation at Maxwells and Allansons. The group was targeting to release the drilling results from the aircore at Cameron Well and the RC and diamond bedrock drill testing at Cameron Well during early in November.
 

Mt Morgans Gold project (Source: Company Reports)
 
Strong infill drilling results: Based on the target, Dacian Gold updated the market about its strong drilling result based on assays from a further 542 predominantly infill AC drill holes at the Cameron Well gold discovery. The latest drilling showed that the dominant SW?NE oriented mineralised structure at Cameron Well is 4km long and included 29m @ 1.1g/t gold from 44m and 9m @ 2.8 g/t gold 64m. The project construction is tracking well with first production scheduled in early 2018. The group has also highlighted that the 50m spaced drilling has confirmed the extension in the eastern half of the oxide anomaly for 2km from the north-west to the south-east.
 

Cameron Well Prospect Oxide Gold Anomaly (Source: Company reports)
 
Cameron Well is evolving into its third significant discovery at Mt Morgans: The group believes that Cameron Well is evolving into its third significant discovery at Mt Morgans, and has outlined a 6km² coherent gold oxide that is based on the results of 855 reconnaissance aircore and RAB drill holes. The company has historically only 18 RC drill holes and no diamond drilling and has tested the bedrock for gold mineralization beneath the recently defined oxide gold anomaly. During the September quarter, the group has released the results of the first six widely?spaced diamond holes drilled into the Cameron Well Prospect. All the holes intersecting bedrock gold showed mineralization with hole 17CWDD0005 returning a spectacular result of 2.3m @ 311.3g/t Au from a down hole depth of 140m (approximately 100m below surface). This high-grade result was from an altered porphyry rock unit that has abundant visible gold present. The group is also optimistic that there is an excellent potential for the discovery of both near?surface oxide and deeper hard rock gold mineralization. Therefore, any new Mineral Resource discovery at Cameron Well has the potential to offer a material benefit to MMGP.
 
Power Purchase Agreement with Zenith: The group has also entered into an 8?year Power Purchase Agreement (PPA) with Zenith Pacific Pty Ltd, which is a wholly owned subsidiary of Zenith Energy Ltd (Zenith) for the construction of a 17MW gas?fired power station during the September quarter. The power station would offer the Mt Morgans Project with cost effective and clean power generation into the future. Under the PPA, the supply would start from 7 March 2018, while Zenith also has the option to extend for a further term of three years after initial 8 years.
 
Balance sheet highlights: As at 30 September 2017, the group reported for cash reserves of $73.9 million while having drawn $45 million of its $150 million facility. Moreover, the shares on issue at the end of the September quarter were 205.5 million, which is an increase of 3.8 million shares from the previous quarter owing to the issue of shares after the exercise of 5?year options that were due to expire on 12 October 2017. The total number of unlisted options and performance rights at quarter?end have reduced to 8.0 million.
 
Plans for the December Quarter 2017: During the December quarter, the group intends to continue with the construction activities to advance the 2.5Mtpa CIL treatment facility, as well as underground mining and grade control drilling continuing at Beresford. The surface clearing of Heffernans Hill at Jupiter would be followed by the starting of grade control drilling for the open pit. The company would also finish the final punch list items at the accommodation village and Westralia MSA during the December quarter. Moreover, DCN has planned that the exploration drilling would continue at the Cameron Well Prospect and below the Westralia Mineral Resource with both projects aimed at increasing the 3.3 million-ounce MMGP Mineral Resource. The Infill diamond drilling of the Inferred Mineral Resource at Westralia is also expected to start with a view to converting this to Indicated Mineral Resource ahead of mine design studies aimed at increasing the Ore Reserve at Westralia (Beresford and Allanson). Additionally, DCN has projected that the expenditure levels for the December quarter would remain high and in line with projected expenditure levels, which are expected to be A$66 million.
 

Pipeline through to gold production (Source: Company reports)
 
Stock Performance: The shares of DCN fell over 2.75% in the last three months (as at November 07, 2017) on the back of the volatility in the gold prices. On the other hand, the group executed a hedge contract for the delivery of 52,000 ounces in FY2020 at an average price of A$1,782/oz. The group also delivered major milestones during their September quarter, and achieved mining of the first underground ore from Beresford, four weeks ahead of schedule. Major progress was made on the construction of the new treatment facility while the group’s exploration efforts are showing spectacular results, wherein a high-grade result from one of their first diamond drill holes drilled at Cameron Well has been unveiled along with confirmation of shallow oxide mineralisation at Maxwells and Allansons. The group’s Mineral Resource has grown fourfold since their 2012 acquisition and has 8.6Mt @ 5.8g/t Au for 1.6Moz as of July 28, 2016. The Initial Ore Reserve of 3.3Mt @ 4.6g/t Au for 492,000oz is expected to be at an AISC of A$837/oz (US$626/oz). The group has forecasted a potential expansion of pre-feasibility study to be 938Koz at a forecast AISC of A$795?805/oz (US$595?605/oz). DCN has an outstanding potential to be a major new Australian gold producer. The stock has generated over 36% returns in last six months (as at November 07, 2017) and is again on the upsurge lately post the three months’ dip. We believe there is potential for the stock to grow, and accordingly, give a “Buy” recommendation at the current price of $2.12
 


DCN Daily Chart (Source: Thomson Reuters)

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