Current trends in exploration expenditure are favouring gold companies that have near-term development potential, and Felix Gold Ltd (ASX: FXG) is positioned to capitalise on this climate of discovery.

Global gold exploration expenditure reached an all time high of US$11.8 billion in 2012, and subsequently proceeded to drop 63% to US$4.44 billion in 2019. It has since bounced back to account for the largest chunk of the world’s 2021 US$11.24 billion total non-ferrous exploration budget – 55% for a total of US$6.18 billion.

In 2021, 38% of exploration expenditure was done at the mine site. The majors aggressively pursued mine life extension plans in order to maximise return on the capital invested into assets during gold’s last big run – from the early 2000’s when it was around US$260/oz, all the way through to 2011 when it broke US$1,800/oz. This occurred in a climate with persistent negative real yields and inflation.

Nearby grassroots projects are key to extending the mine lives of valuable infrastructure, and some of the world’s biggest gold miners have shown their willingness to throw money at projects that might be able to achieve this. Barrick Gold’s grassroots exploration spend jumped 51% in 2022, making up US$121 million out of their total US$288 million total exploration expenditure for the year. 

Kinross Gold Corporation (NYSE: KGC) had the next highest grassroots exploration budget for 2022, totalling US$76 million. Their Fort Knox mine produced 291Koz of gold equivalent in 2022, but mine life currently only extends to 2030. The mine has a 16Mtpa mill that is operating at just 55% of capacity and receives a head grade of around 0.7g/t Au. With an ore-hungry mill, Kinross is actively engaging in M&A to extend the mine life of their Fort Knox mine.

Strategic positioning, superb timing and a wealth of drilling data

Felix’s NW Array project is less than 20km away from Fort Knox, and they are about to declare a maiden resource in the Southern Zone which could range from 270-890koz of gold, and would be a valuable addition to Kinross’ mining operation. 

Kinross’ first quarter of 2023 reiterated their strong focus on improving margins in their US operations. Central to this is the Fort Knox mine – and utilising all its infrastructure to its full capacity. Kinross is preparing to bring the Manh Choh deposit online, which involves transporting ore 400km to Fort Knox for processing and comes with a total capital expenditure of nearly US$200 million. 

Viable deposits that are much closer to the mine and are cheaper to bring into production are a strong focus for Kinross, and Felix Gold is working to prove up a resource that fits Kinross’ requirements. Felix has repeatedly intersected wide assays that are a considerably higher grade than the ore being processed at Fort Knox, and is now only a few months away from releasing their maiden JORC resource.

FXG’s big break came in 2022, when they made a major discovery at NW Array within the flagship Treasure Creek Project, which included 90m @ 1.2g/t Au from 32m, including 60m @ 1.6g/t Au from 42m. The company then unveiled the potential to host from 1.1Moz to 3.6Moz of gold according to a JORC compliant exploration target.

The drilling continued, and in July Felix released another round of assays after a 45 hole, 4,500m resource definition drilling program. They intercepted 100.5m @ 1.14g/t gold from 21.3m, including 47m @ 1.7g/t gold from 38.1m.  Another standout assay included 70.1m @ 1.6g/t Au from 6.1m, including 7.6m @ 6.4g/t Au from 21.3m.

The Alaskan gold explorer put out more drill results at the end of July, which included 54.9m @ 1.80g/t Au from 1.5m, including 30.5m @ 3.02g/t Au from 7.6m and 4.6m @ 7.10g/t Au from 19.8m. The company also intercepted 53.3m @ 1.08g/t Au from 30.5m including 10.7m @ 2.55g/t Au from 44.2m.

Both the grade and the near-surface nature of the mineralisation indicate a potential low cost open-pitable resource. Additionally, the identification of further high-grade north-east trending zones continues to establish the trend Felix has been exploring, while extending it in width and length.

A play that works

Just a few hundred thousands ounces of gold may be enough to get a major miner interested if it is close enough and of sufficient grade. Northern Star Resources Ltd (ASX: NST) recently paid more than $60 million ($41 million in cash and 1.5 million NST shares) for Strickland Metals Limited (ASX: STK) Millrose project, which contains a 346koz resource that was made up of 6Mt @ 1.8g/t Au. 

The project is 30km away from NST’s Jundee Mill in Western Australia, which was acquired by NST in 2014. The operation currently sources around 1.8Mt of underground ore to process through their mill that has 3Mt annual capacity – leaving a sizeable gap that the Millrose project will start to fill. 

Felix Gold’s NW Array could play the exact same role for Kinross’ Fort Knox. With Kinross paying over US$100/oz for their stake in the Manh Choh project, and NST paying over $170/oz for the Millrose project, the potential numbers surrounding a NW Array acquisition are exciting to imagine.

Join CEO and MD of Felix Gold, Anthony Reilly, for an investor briefing next Thursday 7th September at 12pm (AEST) to hear more about the company’s strategic position and significant gold resource. Click here to book in.

Reach Corporate provides Corporate Advisory Services, including managing investor communications on behalf of Felix Gold Limited and may receive fees for its services.

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