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YTC RESOURCES LIMITED
Hera DFS Expanded Following Exploration Success
YTC Resources Limited (YTC, Company) is currently undertaking a definitive feasibility study (DFS) into the development of its Hera gold-base metal project, located 100km southeast of Cobar in NSW. The current DFS proposes a 350ktpa plant, producing ~50kozAuEq per annum, but without any contribution from Nymagee or the Far West Lens.
However, following recent exploration success at its nearby Nymagee copper mine (YTC 80%), as well as the Far West Lens at Hera itself, the Company has decided to increase the scope of the DFS to include potential production from both sources in addition to the main lodes at Hera. The Company has indicated the expansion of the DFS will not impact on the current development timeframe, with key project approvals still expected in mid 2011. We expect the DFS to be completed just prior to these approvals.
Nymagee may be a game changer
Nymagee is a historic copper mine located ~4.5km north of Hera that last operated in 1918, producing a total of 422kt @ 5.8% copper,. YTC has recently undertaken a drill program to test the mineralised extensions of Nymagee, returning some excellent high grade results of:
8.9m @ 7.2% Cu, 24g/t Ag & 0.16g/t Au and
7.0m @ 8.3% Cu, 46g/t Ag & 0.32g/t Au
The mineralisation remains open and highlights the potential for a large copper system at Nymagee. Combined with the high grades encountered in the Far West Lens, YTC is now considering a much larger scale operation and plant than previous envisaged for Hera. Depending on the final size of Nymagee, the deposit may end up being much larger and more valuable than Hera.
Drilling ramping up, development studies expanded
The Company has increased its drilling budget by $4.8m to enable the drilling out of the Far West lode and Nymagee. Following this drilling, the Company will undertake a JORC compliant resource estimate for Nymagee, mining studies, as well as metallurgical testwork and process design to examine the suitability of treating the Nymagee ore with Hera ore.
We see the expansion of the DFS as a logical step for YTC, as both Nymagee and the Far West Lens have the potential to add significant value to the project. The size potential of Nymagee could lead to a substantial increase in ore mined and processed, allowing for a larger processing plant and longer project life, producing gold dore, a copper-silver concentrate, and a zinc-lead concentrate. Previous studies had focussed on only producing gold dore and a bulk base metals concentrate. The generation of a copper-silver concentrate adds substantial value as YTC is likely to be paid more for a separate copper-silver concentrate than for the copper & silver contained within a bulk base metal concentrate. The larger plant will also yield economies of scale cost benefits.
We have removed our previous 57cps valuation due to the likely major changes pending in the expanded DFS, however, we expect these to add value, rather than detract. Consequently we retain our Buy recommendation for YTC Resources Limited.