During the past 12-months our peer group of domestic Australian gold producers has seen their share prices fall by an average of 19%; this is despite the Australian gold price remaining strong and margins remaining high.
The change in investor sentiment towards Australian gold producers has created some real value opportunities in both the producer and the project developers, in this update our mining analyst, Dr Ryan D. Long takes a look at some of these opportunities.
High Gold Price
Over the past 12-months the Australian gold price has risen by around 5%, or A$119/oz, to around A$2,561/oz (Figure 1), not far from the all-time high of over A$2,850/oz seen in August 2020.
Figure 1: Australian Gold Price
High Margins
During the December quarter, the C1 cash cost for our peer group of nine junior domestic Australian gold producers was A$1,552/oz and this compares to an average realised gold sales price of A$2,472/oz. This gives the peer group an average margin of A$920/oz or 37%. These are very attractive margins and show the highly profitable nature of domestic Australian gold mining right now.
Strong Cash Balances
The producing peer group continues to have strong cash balances, with an average of cash and cash equivalents position of A$41 million, and a range of A$15 million to A$118 million. So, the domestic junior gold producers also remain well funded.
Low Share Price Paradox
Despite these high margins and strong cash positions, share prices remain relatively low to where they were six months ago, with the average share price down 19%. This creates something of a paradox for investors as junior Australian domestic gold producers remain highly profitable, but they have lower market valuations than compared to where they were 12-months ago. Below we take a look at some of these value opportunities.
Domestic Producers
Pantoro Limited
Pantoro Limited, is one of a few companies within our peer group to have seen its share price rise over the last 12-months, currently, it is up 33%.
During the December end quarter, the company produced 7,412 ounces (oz) of gold with an operating margin of 42% from its Halls Creek Gold Mine, located in the Kimberley Region of Western Australia. Pantoro’s guidance range for FY22 remains at 16,200oz to19,800oz of gold at an all-in sustaining cost (AISC) of A$1550/oz - A$1750/oz.
Development access to the Wagtail South orebody was also completed during the quarter and production from Wagtail is expected to commence in the June 2022 quarter, providing an additional high-grade ore source following the completion of mining in the Johnston Lode at Nicolsons Mine.
At its 50%-owned Norseman Project, construction works have commenced with the processing plant construction on track for first gold production in August 2022.
Alkane Resources Ltd
Alkane Resources Ltd, has seen its share price rise by around 3% over the past last 12-months.
During the December end quarter, the company produced 16,935oz of gold with an operating margin of 56% from its Tomingley Gold Mine, located in Central Western New South Wales. Alkane’s production guidance range for FY22 remains at 55,000oz to 60,000oz of gold while the AISC guidance has risen to A$1,500/oz to A$1,650/oz, from A$1,450/oz to A$1,600/oz.
The permitting for the Tomingley Gold Extension Project is continuing. Alkane’s intention is to develop the Roswell and San Antonio deposits, which are located between 3 km and 5 km south of Tomingley, as soon as possible.
The Environmental Impact Statement for the Tomingley Gold Extension Project has been finalised and submitted to the Regional Government for their final review. Formal submission is expected later this month with project approval anticipated for mid-2022.
Gascoyne Resources
Gascoyne Resources’ share price is down 48% in the past 12-months.
During the December end quarter, the company produced 16,442oz of gold with an operating margin of 8% from its Dalgaranga Gold Mine, located 475km northeast of Perth in Western Australia. Gascoyne’s guidance range for FY22 has been updated to 70,000oz to 75,000oz of gold at an AISC of A$2,100/oz to A$2,200/oz, from A$1,950/oz to A$2,050/oz.
A change in the company’s strategy to defer the capital-intensive Stage 3 cut-backs in the Gilbey’s pit and focus on higher-grade ore sources to achieve a consistent +1g/t Au head grade into the Dalgaranga mill is expected to take full effect next quarter. This should increase production levels and also reduce costs.
Alongside this programme of mine optimisation the company has also undertaken a programme of near-mine exploration, aimed at extending existing deposits and finding new, higher-grade ore sources in close proximity to the plant. High-grade drilling results from areas such as Plymouth and Hendricks have already been returned and further results are expected in the weeks ahead.
Ora Banda Mining
Ora Banda Mining’s share price has trended down by 81% over the past 12 months.
During the December end quarter, the company produced 17,192oz of gold with an operating margin of 35% from its Davyhurst Gold Mine, located 120 km northwest of Kalgoorlie in Western Australia. Ora Banda’s guidance range for FY22 remains at 70,000oz to 75,000oz of gold no guidance for AISC has been given.
After encountering initial issues with the processing plant and mining operations, during the December quarter, Ora Banda put in the company’s best performance, since the re-start of Davyhurst operation. The company anticipates further reductions in operational costs as optimisation continues.
Wiluna Mining
Wiluna Mining’ share price is down 19% in the past 12-months.
During the December end quarter, the company produced 7,752oz of gold with an operating margin of 68% from its Wiluna Gold Mine, located 750km northeast of Perth in Western Australia. Wiluna’s guidance range for FY22 remains at 70,000oz to 80,000oz of gold at an AISC of A$1,150/oz to A$1,200/oz.
Stage 1 of the expansion continues to progress in line with expectations as the new plant at Wiluna was successfully commissioned in December 2021. The ramp-up to full production is underway and will take approximately six months to achieve full commercial production, increasing production levels to 120,000 ounces of gold per annum from 51,000 ounces.
The Feasibility Study for Stage 2 at Wilina, which will see production increase to 250,000 ounces of gold per annum, is expected to be finalised by the end of March 2022, alongside a resource and reserve update based on the recently completed 112,000-metre drill programme.
The company is also continued developing the Wiltails Project. Construction of the tailings retreatment operation will commence in February 2022 and is expected to be completed and commissioned in May 2022.
Beacon Minerals
Beacon Minerals’ share price has slipped down 8% during the past 12-months.
During the December end quarter, the company produced 7,779oz of gold with an operating margin of 68% from its Jaurdi Gold Mine, located 35 kilometres northwest of Coolgardie in Western Australia. Beacon’s guidance range for FY22 remains at 24,000oz to 28,000oz of gold.
2022 will see Beacon move to an owner-operator model for its open-pit mining operations. This is expected to reduce cash operating costs by over A$70 per ounce of gold, with less than a two-year payback on the capital investment.
Construction of the Jaurdi tailings storage facility will be completed in the March quarter of 2022 and will have a capacity of 2 million dmt.
Dacian Gold Ltd (ASX:DCN)
Dacian Gold Ltd (ASX:DCN)’s share price has trended down by 63% over the past 12 months.
During the December end quarter, the company produced 17,200oz of gold with an operating margin of 12% from its Mt Morgans Gold Operation, located 750km northeast of Perth in Western Australia. Dacian’s production guidance range for FY22 remains at 100,000oz to 110,000oz of gold, with the AISC updated to between A$1,750/oz to A$1,850/oz from A$1,550/oz to A$1,700/oz.
Gold production at the Doublejay open pit for the rest of the financial year is expected to come from the thick and higher-grade ore zones. The development of the company’s Redcliffe Project remains on track for commencement of production by mid-year with activities well advanced. The maiden ore reserve for the Hub and GTS Deposits are due in March quarter.
Catalyst Metals (ASX:CYL) Ltd
Catalyst Metals (ASX:CYL) Ltd has slipped down 13% during the past 12-months.
During the December end quarter, the company produced 6,311oz of gold with an operating margin of 32% from Henty Gold Mine, located in Tasmania. Catalyst’s guidance range for FY22 remains at 25,000oz of gold.
In the March quarter, Catalyst is expecting an extensive programme of drilling activities across its portfolio of interests with two diamond core rigs, one RC rig, and one air-core currently drilling. A second RC rig is expected in February and a second air-core rig is being negotiated.
Recent exploration results have the potential to increase resources from the significant high-grade intercepts outside the current resource estimate, and also to delineate new resources in new areas not previously considered.
Red 5 Limited
Red 5 Limited is up 23% in the past 12-months.
During the December end quarter, the company produced 16,519oz of gold with an operating margin of 13% from its West Australian Gold Operations. Red 5’s guidance range for the financial year remains at 62,000oz to 72,000oz of gold at an AISC of A$2,300/oz to A$2,400/oz.
Red 5’s 4.12-million-ounce (1.46g/t Au) King of the Hills development project, located in the Eastern Goldfields Region of Western Australia, is progressing within budget and on schedule with first gold production targeted for Q222. A feasibility Study for the Koth Project, completed in September 2020 returned a post-tax NPV8 of A$0.7 billion and a post-tax IRR of 49.8%.
The project is expected to produce an average of 176,000 ounces of gold during the first six years of mine life at an AISC of A$1,339/oz Au and an average of 146,000 ounces of gold over the sixteen-year mine life at an AISC of A$1,415/oz Au.
Domestic Developers
Domestic Australian Gold Developers have also been affected by the changes in the sentiment towards the sector with our peer group remaining flat over 12-months. The following companies have some significant milestones ahead of them this year and are poised to make the transition from developer to producer.
De Grey Mining Ltd
De Grey Mining Ltd is developing the 9.0-million-ounce (1.2g/t Au) Mallina Gold Project, located 60km south of Port Hedland, the Pilbara Region, Western Australia.
A scoping study completed in October 2021 returned a post-tax NPV5 of A$2 billion and a post-tax IRR of 49%. The project is expected to produce an average of 473,000 ounces of gold during the first five years of mine life at an AISC of A$1,111/oz Au and an average of 427,000 ounces of gold over the following ten years at an AISC of A$1,224/oz Au.
The Mallina Project has significant local and regional exploration potential, and drilling at the project is ongoing with an updated resource estimate expected during H122. A pre-feasibility study is due to be completed in Q322, with the definitive feasibility study to start thereafter. First production is targeted for H225.
Bellevue Gold
Bellevue Gold is fully funded to put its 3-million-ounce (9.9g/t Au) Bellevue Gold Project into production. The Project is located in close proximity to the town of Leinster in Western Australia.
An updated feasibility study completed in September 2021 returned a post-tax NPV5 of A$0.9 billion and a post-tax IRR of 62%. The project is expected to produce an average of 200,000 ounces of gold during the first five years of mine life at an AISC of A$922/oz Au and an average of 183,000 ounces of gold over the eight-year mine life at an AISC of A$1,014/oz Au.
Resource drilling is ongoing at the Bellevue Project and updated resource/reserve estimates are expected in Q122 and Q322. The construction of the processing plant is expected to commence in Q322 with first production targeted for Q223.
Horizon Minerals
Horizon Minerals has a 1.13-million-ounce (1.72g/t Au) resource-based from seven core deposits, located in close proximity to each other around the town of Kalgoorlie in Western Australia.
The company has commenced a second trial mining and toll milling operation at one of these deposits, Boorara, after the first campaign generated A$0.8 million in net cash and improved resource quality of the deposit. Based on this work mine optimisation, design and economic evaluation of all resources are now underway.
Horizon has also commenced its largest-ever exploration drilling programme with up to four drill rigs on site across its 1,100km2 portfolio, with initial results defining new discoveries below cover, results will continue to be announced over the company months, along with a maiden reserve estimate from the Boorara Deposit.