AEX Gold, AEXG, Up 20% – How Good Are Greenland Results?

AEX Gold (LON: AEXG) shares are up some 20% since the end of last week. The news was released this morning on their drilling results at Nalunaq in Greenland. This is a fascinating new mining area for a number of reasons but there are also risks associated with it.

The basic background here is that Greenland is largely virgin territory for minerals exploration. This is partly about the retreat of the ice, given climate change, but it’s only very partly about that. The other side is that techniques for both mining and exploration in harsh environments have improved in recent decades. So, it’s possible to go and look where people didn’t bother before.

It’s thus possible – only possible, of course – that there are substantial mineral deposits there. Of a richness that would already have been mined out in other geographies. There is no certainty of this at all, but that’s what the background supposition is.

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AEX Gold is working on testing that idea to see whether it is as the supposition holds it might be. This specific prospect at Nanulaq has been mined before but only over the 2003-2014 period. Thus the basic Greenland idea is being added to that more basic gold mining one – the place to look for gold with new technologies is where people found it before with old ones. Perhaps the new tech will enable more to be found or more to be extracted?

AEX is at the stage, here, of simply finding out what there is there. Thus a drilling programme to check the geology. The results being reported are almost absurdly high – backing up that Greenland idea. 5,240g/t Au is the number for the actual quartz vein itself, not for the amount of rock that has to be moved to gain access to it, but that’s still impressive. The inferred mineral resource at 18.5g/t Au is also, by the standards of these things, high.

This is not, though, as yet, proof positive. For while finding very decent ore is one part of the process, it’s also necessary to find enough of it to cover the fixed, or overhead, costs of extracting any of it. Here the inferred resource is 251Koz in 422,779 tonnes. Interesting, most certainly, but not that proof positive as yet.

The full results of the drilling programme are here. As AEX itself says the geology makes accurate calculation of the resource difficult. As the gold tends to be in significant nuggets, there’s high variability over small areas. Further research – which is being undertaken – is necessary to be able to both define the resource and also try to advance it to a reserve.

So far, AEX has shown that there’s something interesting there. This next stage is to show how much of it there is. Valuation will depend upon the results of exactly that process.