Only a few years ago, with commodity prices slumping and demand for precious metals low, Goldplat PLC (LON:GDP) was hoping for a change in fortunes.
Now the gold producer’s not got just one thing going in its favour, but several.
The gold price has recovered, a weak pound following the Brexit vote has provided the Africa-focused gold processor with an exchange-related boost while its Kilimapesa mine is poised to recover.
Evidence of the improvement showed strongly in the interims to December as profits roe by 238% to £1.33mln on revenues of £14.4mln (£10.7mln).
For the previous year, profits in total were £2mln on revenues of £20mln.
Money in waste
Goldplat recovers metal left on the by-products from mining and production rose by more than a fifth to 21,317 ounces in the half year, though some of this was held back while it waited for renewal of its licence in Ghana, which has now come through.
The one wrinkle is an ongoing dispute with Rand Refinery, one of the largest precious metal refineries in the world, but a favourable resolution here is near suggested the interim statement.
Unlike traditional gold producers, Goldplat doesn’t get its gold from mining. Instead, it extracts the precious metal from other firms’ waste materials.
As VSA Capital’s Oliver O’Donnell explains: “Gold latches onto pretty much anything, so wooden supports inside the mines, mill equipment and linings – that all absorbs gold throughout the mine life.”
“Basically what [Goldplat is] doing is taking all sorts of mining waste products or machinery that’s come to the end of its life and extracting the gold from that and then refining it.”
The obvious question then is, ‘why do the big miners not extract the gold from their own equipment?’
The simple answer, as it always is in business, is money.
“The majors could set up their mills to try and extract gold from these various materials, but it wouldn’t be economic to do so,” says O’Donnell.
“Goldplat can do it on such a scale where it becomes economic.”
This waste material obviously comes with certain challenges and complexities. Given that it’s already been processed and often stockpiled as waste, it is by no means a homogenous body and it can pose problems.
But from a challenge rises an opportunity.
Like other tailings projects, there are no mining costs to contend with, so even if the company takes a hit on the amount of it can gold recovered, the healthier margins help to counteract this.
Expansion at the Kilimapesa gold mine in Kenya is also on the cards, as the interim production number of just 932 ounces of gold, it currently ranks as something of a small fry.
And then there’s a newly established JORC resource of 82,000 ounces of gold with associated silver and uranium oxide at the South African operation.
On a larger scale, there are plans for the company to expand into South America, a move which is made even more appealing by the numbers.
One small operation producing just over 20,000 ounces of the yellow metal a year, as the South African arm does, is fairly small potatoes. Add in Ghana and you can see things starting to scale up.
With two or three more operations dotted around South America, it wouldn’t be crazy to think that production could edge towards 100,000 oz a year, which is the traditional entry point into the ranks of the mid-tier minders.
Kisbey-Green hailed the recent successful processing of the first batch of South American material as “an unexpected bonus”, and he’s hoping for bigger things.
The gold price
A strong gold price obviously makes the economics of any operation that bit more viable and Kisbey-Green will be one of the people who’ll be hoping the political environment in 2017 remains so uncertain.
Only recently, banking giant Credit Suisse said “prolonged macro uncertainty” would likely see the gold price top US$1,475 before the year is out”.
Goldplat announced back in July that it had issued a demand letter to Rand Refinery – its primary South African refinery – for around £600,000.
The specific details are a little vague, given that legal teams are now working on resolving the matter, and it is hoped a swift and amicable agreement can be found.
Regardless, the two companies continue to work together in the gold refinery process in a “business as usual manner”, so it would appear that the dispute isn’t too unfriendly.
An independent, third-party “industry expert” has also been brought in to examine what has happened and Goldplat hopes to shed more light on the light situation over the next six weeks or so.
Kisbey-Green has said that this stand-off gives the company chance to build relations with other refinery firms so that it’s not too reliant on Rand.
“Just by way of de-risking ourselves from what we call a ‘single refiner risk’, we have rekindled our relationships with a number of other refineries around the world.”
He says that building relations with other firms doesn’t mean that Goldplat wants to end its relationship with Rand, though.
“On the contrary, we’d like to sort out our relationship with the Rand Refinery and continue good business with them, but it is prudent for us to de-risk this [current] issue.”
And finally, the share price…
Like most gold producers, Goldplat suffered in recent years as the price of the precious metal it processed fell, which was reflected in a tumbling share price, but the trend has definitely shifted.
The share price currently sits just above the 6p mark, giving the company a market valuation of approximately £10mln.
According to VSA, another potential boost will come from the turnaround at the Kilimapesa gold mine in Kenya.
“We believe that the turnaround of Kilimapesa and return to profitability will unlock significant value.
“Losses in recent years have undermined the performance of the wider group and we view the turnaround as a key catalyst for the shares which are up 188% from the 2015 lows.”
That VSA’s target price is 11.2p, some 70% higher than the current market price of 6.62p, reflects its confidence.