This report started as a post-Diggers 2015 Site Visit report, but we/ERA were also intrigued, having followed and written research a number of times on Phoenix, what had happened, as in :

• Why did the grade from Kintore fall by 0.7g/t from 1.9g/t at the mine to 1.2g/t at the mill?
• Why had Castle Hill not started mining yet - as in what was wrong with it ?, and
• What had happened to all that potential exploration upside?

On 20 August 2015, Evolution (EVN) announced its intention to make an off-market takeover offer for PXG in the form of 0.06EVN shares and $0.06 in cash or ~$0.12 per PXG share, thus valuing PXG at ~$56m (which although 20% higher than Zijin's 10c cash offer, is in ERA's opinion still a bargain as detailed in this report, FIRB is not expected to be an issue, as it has already been granted to Zijin).

Our current recommendation for PXG at 12c is a SPEC BUY with a target of >15c. So why would anyone pay over 15c for PXG ?, well theoretically PXG's assets appear to have the potential to produce ~100kozpa to ~200kozpa for more than 10 years, based on our site visit and discussing what happened and why at Castle Hill, Kintore and the exploration; including the fact that Castle Hill's Mick Adams alone could potentially be comparable to Gold Road (GOR ~$265m market cap)'s Gruyere.

However, EVN's offer raises three possible outcomes:

1. What does Zijin do next ? Zijin may increase its cash offer (after all depending on the pre-bid arrangement it may have paid up to the 13c that Geologic participated in), and it started its offer for NGF at 20c on 17 April 2015, increasing it to 23c on 30 April and then 25c (the same as it offered in 2012) on 26 May. Zijin certainly has plenty of cash, revealing in its Diggers 2015 presentation that it had a war-chest of ~$2.2bn (Rmb10bn) for acquisitions
   PXG shareholders should not just want cash, because cash means no participation in any future potential upside due to PXG's holdings (whereas bids involving scrip mean participation). In much the same way that NGF shareholders have probably now realised that they gave their NGF shares to Zijin for 25c in cash, in a company that potentially could produce up to ~450kozpa or so (as indicated in Zijin/NGF's Diggers presentation with its rated mill expansion to 4.6mtpa [though 5mtpa may be achievable], and game changing additional 1mtpa refractory plant [on which work is already in progress] within 3 years to probably treat Racetrack, re-open Ora Banda (Gimlet etc) for the Victorious Basalt hosted mineralisation and possibly treat Aphrodite, etc; & yet still excluding Mt Morgan [QLD - see ERA's 2003 Lodestone Exploration report on www.eagleres.com.au], and Bullabulling).
2. Ideally PXG shareholders should want EVN to have majority control or PXG in strategic control (based on previous Chinese held positions, we/ERA doubt that Zijin will relinquish its PXG holding because the PXG assets have significant long-term upside potential). If Zijin did manage to get majority control, then it may gradually takeover, eg by providing loans, and converted into shares, with resulting dilution.
3. So how far may EVN chase the offer, if Zijin does increase its cash offer. And if EVN is successful when does EVN consider increasing the size of its 1.5mtpa rated (though possibly achieving up to 2mtpa) Mungari plant.

For our post Diggers PXG visit on 7 August 2015, we/ERA visited some areas that we have visited before, but focused on:

• the Kunanalling Shear : namely Premier (source of the gold nuggets in the booth at Diggers 2015), what happened at Castle Hill, and examined the grade discrepancy at Kintore West.
• the Zuleika Shear : being the 7 proposed priority target areas from the NST boundary through Blue Funnel to Broads Dam; and Carbine North (on an offshoot of the Zuleika), and
• the Ora Banda / Grants Patch trend - namely the Old (and original) Ora Banda prospect.

The Kunanalling Shear Zone (KSZ)

Castle Hill

On the KSZ, PXG's key issues are its holdings in Kintore and Castle Hill, and PXG's decisions there have held itself back. Also Kintore was mined and treated at Greenfields, whereas Castle Hill was supposed to have started by November 2014 and treated at Paddington, but did not and still has not started.

To elaborate, a bit of history (note : this includes the expiring option and claw back arrangements and why Castle Hill has not yet been mined, plus the major error (in hindsight) that PXG made in focusing on Castle Hill to the detriment of its regional exploration outside of Castle Hill, because it believed an agreement was going to be honoured).