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Finding an entry point into a hot gold sector is not easy with most major producers trading well ahead of the gold price. However, there could be value for speculators among smaller project developers that have been jolted awake by an infusion of cash.
The problem with big goldminers was explained earlier this month after the gold price had rushed up to $US1440 an ounce and sector leader Newcrest had risen from $24.64 to $36.66, outstripping even the most optimistic forecast.
Since that earlier story the gold price has moved higher to be trading around $US1513/oz ($A2231/oz).
Unless the gold price continues to rise, which it could given the unstable global financial markets, the big boys of Australian gold could fall further to better reflect their underlying earnings.
It’s a different situation at the other end of the gold sector where price moves are dictated by speculative interest in future potential production.
In this edition of Minefield, we examine three emerging gold stocks – or more accurately, re-emerging gold stocks. These companies share the common threads of high-quality management, recently raised capital, and projects that look to be handsomely profitable at the latest gold price.
That being said, they are still high-risk plays and should be considered part of a diversified portfolio.
Until a few months ago, Capricorn was a mess. It was struggling to find a way to develop its big but low-grade Karlawinda gold project near BHP’s iron ore mining centre of Newman in the north-west of WA.
A management overhaul, a big cash injection and a hedging deal with Macquarie Bank, which locks in a handsome gold price of $A2249/oz for the first two years of production, has cleared the way and lifted Capricorn’s share price from 9c in late June to around 22c today.
Because little has changed at the Karlawinda project in the past few years, the issues that woke the stock include a series of cash injections, including $65 million raised last week from an issue of shares priced at 16c, and the installation of a new management team led by Mark Clark, a former chief executive of the successful goldminer, Regis Resources.
Other members of the Regis team have followed Clark into Capricorn. It’s a very different company now to the one that had struggled to convince investors it was possible to make a profit from low-grade ore.
The higher gold price, especially the much higher Australian gold price which received a double-boost courtesy of the falling exchange rate, has significantly improved the outlook for the company and its project.
The original plan for Karlawinda was the production of 100,000 ounces of gold over an initial mine life of 8.5 years at an all-in sustaining cost of $A1038/oz from an ore reserve of 27.5 million tonnes grading 1 gram of gold per tonne.
The new plan is to optimise what has been designed while pushing ahead with early site works and the acquisition of long lead-time plant and equipment. The aim is to start full-scale construction early next year and pour first gold in early 2021.
Like Capricorn, mentioned above, Calidus has a low-grade gold project not far from the iron ore mines of WA, a fresh pot of capital to push ahead with mine planning, and a high-quality leader in Mark Connelly who has decades of experience in running successful gold producers.
The Warrawoona project, located close to Marble Bar in the Pilbara, has a resource of 1.25 million ounces of gold in material assaying 1.83g/t, with 795,000oz in the higher-quality reserve category.
Three corporate investors, which are London-based Keras Resources, Canadian-based Novo Resources and the local goldminer and rare earth developer, Alkane Resources, effectively control Calidus with stakes of 38.9 per cent, 3.1 per cent and 13 per cent respectively.
The plan for Warrawoona is to apply $9 million raised last week through an issue of new shares at 3.2c each to finalise resource drilling and environmental permitting before moving on to project financing and a final feasibility study early next year. A construction start has been pencilled in for the final quarter next year.
If all goes well, the project could produce 97,000oz of gold a year over an initial six-year campaign at an all-in sustaining cost of $A1159/oz.
The development cost is estimated to be $95 million with mining focused on the Klondyke mineralised structure, but also with a series of other exploration targets in a region with a long history of goldmining.
On the stock market, Calidus has been unimpressive, stuck in a rut between a share price of 2c and 3c, with an occasional peak at 4c. The lack of interest could be a result of having 55 per cent of its issued capital held by the three major investors.
But as the project moves towards a final development commitment at a time of strong interest in gold, it’s the corporate connections and management structure which could see Calidus re-rated.
Once a star and a stock mentioned several times in the Minefield column over the past three years, OreCorp effectively disappeared from view after being buffeted by turbulence in Tanzania, the African country which hosts its plum asset, the Nyanzaga project.
Like Capricorn and Calidus, OreCorp boasts a top-quality management team and gold in the ground which is all-but-ready to mine.
However, when the government of Tanzania declared war on parts of its mining industry, OreCorp was caught in the backwash, unable to make progress with its development plans while also suffering a share-price slump from 62c to 14c over the course of 2017.
Times change. Tanzania and the miners have overcome most of their disagreements and OreCorp is pushing ahead with plans for Nyanzaga, armed with an extra $13.3 million raised last week with a share issue priced at 25c.
Chaired by Craig Williams, who made a fortune for investors in Equinox Minerals (a $5 million company sold for $7 billion), OreCorp has several other ex-Equinox staff on board. As well, the chief executive, Matthew Yates, managed (and sold) Mantra and OmegaCorp.
Apart from a shared background, the OreCorp team has an interesting quality. They know when to sell, which can be more important than knowing when to buy.
In theory, the way is now clear for OreCorp to push ahead with developing Nyanzaga and monetising the resource of 3.07 million ounces of gold in material assaying a relatively rich 4.03g/t.
The plan is to produce 213,000oz of gold a year over an initial 12-year campaign at an all-in sustaining cost of $US838/oz.
On the market, OreCorp has shaken off some of its Tanzanian discount, rising over the past two months from 20c to 31c – which means subscribers to the 25c-a-share placement are handsomely in the money already.