Company Overview - Papillon Resources Limited (Papillon) is engaged in the exploration and development of resource projects located in Mali. The Company has joint venture interests in a portfolio of gold tenements (granted licences and applications) in western and southern Mali. The Company’s primary focus continued to be the advancement of the Fekola Project located in south western Mali adjacent to the border with Senegal. Papillon has completed its pre-feasibility study (PFS) for the project. The Company’s subsidiaries include Mali Goldfields SARL, Songhoi Resources SARL, Bamagold SARL, Waraba Resources SARL, PIR Mali SARL, Papillon Exploration (AUS), Papillon Mining (AUS), Papillon Exploration (UK) and Papillon Mining (UK).

Analysis – Following PIR’s recently announced exploration results from the Menakoto Sud prospect we have reviewed the exploration potential of the Fekola region. In our view there is excellent exploration potential for both near mine extensions of Fekola and the discovery of satellite deposits within the region. To date deep drilling at Fekola has been limited. Four drill holes completed in late FY13 successfully demonstrated the continuation of mineralisation at depth and this remains open. We believe Randgold’s Gounkoto deposit provides a geologic analogue to the high grade zones of Fekola and illustrates the potential for additional discoveries at depth. The discovery of additional near surface ounces could have a more immediate positive impact on the project. Results from  the first pass reconnaissance drilling at the recently granted Menakoto Sud prospect 13km north of Fekola are highly encouraging. A shallow RC drilling programme of 14 holes intersected mineralisation over similar widths and at similar grades to Fekola.


Fekola Site Layout (Source - Company Reports)

In our view there is excellent potential for the discovery of additional ounces in near mine locations both at depth and along strike from Fekola and in near surface satellite locations within the corridor. We believe that with time these will be drilled out and brought into the mining inventory. Following the receipt of the mining permit, geotechnical drilling is now complete. The DFS is scheduled to begin soon and we believe this should be complete around the year end. Given the size and the location of the build, we think a 2 year estimate to full production is appropriate. Exploration drilling around the Fekola gold deposit has continued to uncover shallow gold mineralisation with the results from January RC drilling (61 drill holes) returning a number of intersections of shallow, high grade gold mineralisation north of the deposit. Drilling remains focussed on testing the definition of open pittable gold mineralisation that can augment the Fekola deposit. Exploration on Fekola and the Menankoto Sud exploration permit areas shows resource discovery potential and will be the focus of more exploration post completion of project drilling on the Fekola project.


Open Pit Mining (Source - Company Reports)

Our investment thesis for Papillon is built on our belief that the Fekola gold project has the capacity to emerge as a significant gold producing asset in the near term. The asset’s significance stems from the inherent gold endowment and grade (5.15 million ounces of gold grading 2.35 grams per tonne) as well as its shallow depth and continuity that facilitate exploitation by open pit mining and conventional crush/grind-carbon in leach (CIL) processing (Capacity : 4 million tonnes per annum [Mtpa]). Based on the last resource estimate  and the company’s June 2013 prefeasibility study on Fekola , we anticipate that processing its high grade material can be sustained for a period of 12 years, to yield an average annual output of >300,000 ounces of gold at an average cash cost of US$682 per ounce.


40Moz+ discovered within 150 kms of Fezola (Source - Company Reports)

Working with lower grade material  only (1.0 g/t gold is expected to mark the last 3 to 4 years of processing life, to generate average annual life of mine (LOM) output of 262,000 ounces of gold at an average cash cost of $699 per ounce. These modelled operating parameters and asset characteristics place Fekola as a project capable of rivalling other large scale open pit operations in Mali and elsewhere in Africa.
Fekola is endowed with three primary asset characteristics that mark it as an attractive target for potential acquirer: Grade (durability of operating margin and mining cycle), Size and growth potential (16 years of operations) and operational simplicity (exploitable by open pit mining and CIL processing).


PIR Daily Chart (Source - Thomson Reuters)



We are cognizant of the political stability issues in Mali arising from the recent Islamist-led rebel activites in the eastern part of the country  and the subsequent need for a Frnch Led UN military force to retake Timbultu, Goa and Kidal from the rebel hands. Nonetheless we note that the mining operations in West Mali near the border with Senegal were little affected during the aforementioned troubles. From an infrastructural standpoint the Fekola gold project is fortunate in that it occurs along the Mali – Senegal border, is proximal to a number of operating gold mines in Mali and is close to the Millennium Highway from Bamako to the port city of Dakar in Senegal. These infrastructural attributes go a long way towards supporting potential project development , and aid in creating a sustainable operation that requires ready access to skilled labour and a reliable service network.

The results from Menankoto Sud highlight the potential for satellite deposits in the Fekola corridor. In our view it is likely that additional reserves of sufficient size and quality will be defined to provide supplementary feed for the Fekola mill. Assuming a $1200/oz gold price and comparable mining metrics to those of Fekola, open pit material within the Fekola region of over 1.5g/t could be trucked to a central mill. Menankoto Sud lies within the interpreted northern extension of the Fekola corridor. The geology of Menankoto Sud is analogous to that at Fekola with mineralisation occurring over similar widths and at similar grades. Geophysical surveys are currently being completed to develop further drill targets. We are confident that over time PIR will define 1Moz of additional mining inventory. We assume an additional 15Mt at the same grade as Fekola of 2.4g/t. Given our positive view of the exploration potential of Fekola and its surrounds we will be putting a BUY on the stock at the current price of $1.235.

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