There are one or two bright spots forming on an otherwise gloomy horizon in the mining sector. The first is the modest uptick in the iron ore price, which has pleased the Australian government as its tax take looks set to benefit to the tune of a couple of billion dollars.
The second is the recent up-tick in the gold price. That’s been greeted with pleasure too in Australia, and especially so since the strength of the US dollar and corresponding weakness of the local currency has magnified the impact.
“The gold price is up, the Aussie gold price is up. It’s really good to be alive at the moment.”
Those are the straightforward thoughts of Dave Reeves, the managing director of Keras Resources (LON:KRS), which is probably the only junior gold miner listed in London that offers direct and immediate exposure to the upside in Aussie-dollar denominated gold.
And it’s had to be pretty fleet of foot to get it too.
Back in November of last year, the company’s primary focus was still on its manganese and iron ore assets in West Africa. These projects did, and still do, have a lot going for them, but bulks in Africa are not exactly flavour of the month at the moment, and when opportunity came knocking in the shape of a tribute deal with Norton Gold Fields (ASX:NGF) in Australia, Reeves jumped at the chance.
So it was that on 17th November Keras announced the acquisition of a company with an agreement to mine certain tenements held by Norton Gold Fields over a five year period. Referred to as a tribute deal, under the terms of the agreement with Norton, Keras must pay mining and processing costs plus a 22% royalty.
It’s a win-win for both sides, as all the best deals are. Norton gets someone else to take the strain on an area that hadn’t been central to its plans, while Keras gets the cash flow and the profits available on the project, now even more attractive in the current commodity and currency pricing environment.
“We think the model we’re using is a good one,” says Reeves. “If we had to go out and explore it’d take years. This way we can go and mine other people’s gold.”
And that mining of other people’s gold can take place almost immediately. Keras is anticipating production and cash flow as early as the second quarter of this year. Initially two laterite pits, Accord and Anomaly 22, will be mined, while an internal feasibility study on the larger 209,000 ounces underground resource at Prince of Wales is completed.
And Keras won’t be stopping there either.
Shortly after the deal with Norton was done, Reeves put on the record his ambition to do similar deals in the near term.
True to his word the company has now signed a second tribute deal, this time in regard to the Wycheproof project owned by Kalgoorlie Mining Associates.
Again, the project is fairly small scale, but comes at a cost of just A$70,000 on first production, with associated profit shares and royalty payments. A low-cost entry into a high margin business is not to be sniffed at under any circumstances, but in a sector that’s well known to be struggling such deals ought to be embraced with open arms.
In that context, it’s hardly surprising that investors have been reacting favourably to Keras’s recent moves.
Following the Wycheproof deal the company’s shares have shown signs of climbing back towards the one year high of 0.75p. In the past three months they’ve risen from a low of 0.375p to their current 0.68p.
Which way they go from here may admittedly be a function more of the gold price than of Keras’s deal-making activities, but the attractions are clear.
The Aussie dollar gold price is allowing certain companies to make a lot of hay in a sector that’s lately been starved of success stories. The rarity of a London-listed company with exposure to all this Australian upside only adds to the appeal.
Now that Reeves has shown that the deal structure with Norton can be replicated, the opportunities for further expansion could start coming in pretty quickly.