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With gold still above US$1,940 an ounce after its recent flirtation with US$2,000, Australian gold miners are enjoying halcyon days – those with wholly A$ costs are dealing with an A$ gold price of more than $2,650.
The big five – Newcrest Mining, Northern Star Resources, Evolution Mining, Saracen and Regis Resources – grab most of the interest, but there are plenty of emerging/second-tier gold producers to buy if you are bullish on gold. Here are four of them.
Market capitalisation: $1.4 billion
Three-year total return: +32.4% a year
FY20 (December) estimated dividend: 1 cent
Analysts’ consensus valuation: $2.00 (Stock Doctor), $2.00 (FN Arena)
Gold Road kicked off commercial production at the Gruyere project, which it half-owns with South African company Gold Fields, in October 2019, six years after discovering the deposit. The two companies began pouring gold at the Western Australian site on 30 June 2019 and as at 30 June 2020, had produced 230,590 ounces with an all-in sustaining cost (AISC) of production. This incorporates not only the “cash cost” of production, but all the costs that allow production to be sustained of $1,186 per attributable ounce.
Gold Road uses the calendar year as its financial year. At the 30 June half-year, it reported 131,460 ounces of production with revenue from gold sales of $135.1 million, at an average price of $2,237 an ounce, yielding a net profit for the half-year of $23.4 million, at a margin of more than $1,000. The strong cash flow performance at Gruyere enabled Gold Road to pay down all of its debt within less than ten months from declaring commercial production, leaving it in a strong position. Not only is the Gruyere mine running strongly, further drilling in the Yamarna tenement south of the mine looks highly promising for more gold discoveries.
Market capitalisation: $996 million
Three-year total return: +4.6% a year
FY21 estimated dividend: nil
Analysts’ consensus valuation: $2.90 (Stock Doctor), $2.90 (FN Arena)
Westgold Resources had a big year in FY20, getting its flagship Big Bell operation into production, adding to its existing mines in the Murchison area of Western Australia, at Fortnum and Meekatharra. The Big Bell underground mine, which used to be one of the largest single-mine gold producers in Australia, churning out a total of about 2.7 million ounces, has been idle and flooded since 2003, when technical problems and a gold price of less than US$500 an ounce made it uneconomic. Westgold bought the project in 2011 and since 2016 it has been working in earnest on getting it back into production.
In FY20, Fortnum produced 60,839 ounces at an AISC of $1,308 an ounce. Meekatharra produced 104,088 ounces at an AISC of $1,496 an ounce and the Cue operations (Big Bell and some existing open-pit mines) produced 70,223 ounces, at an AISC of $1,729 an ounce. That translated to a company total of 235,150 ounces produced, at an AISC of $1,518 an ounce, helping net profit to more than double, to $34.6 million. Westgold has provided guidance for production of 270,000 to 300,000 ounces in FY21, with an AISC of $1,460 to $1,560 per ounce. Big Bell is expected to produce about 100,000 to 110,000 ounces a year. Westgold has a large resource of 8.8 million ounces and a reserve base of 2.5 million ounces, which underwrites long mine lives from its three mining hubs.
Market capitalisation: $1.7 billion
Three-year total return: –11.3% a year
FY21 estimated dividend: 4.1 cents
Analysts’ consensus valuation: $4.72 (Stock Doctor)
OceanaGold produces gold from mines on both islands in New Zealand. On the South Island, the Macraes operation in Otago is a combined open-pit and underground operation, while on the North Island, the Waihi Gold Mine is an underground operation. Since 2015 the company has also operated the Haile open-pit gold mining centre in South Carolina, USA, and OCG also owns the Didipio gold-copper mine in the Philippines, which has been suspended since July 2019 following a dispute with local authorities and the country’s government.
The mining operations in both New Zealand and the US have been affected in 2020 by shutdowns associated with COVID-19, forcing production guidance downgrades (the Waihi underground/open-pit operation is expected to resume in the December quarter). For the June 2020 half-year, OCG reported production of 139,385 ounces at an AISC of US$1,237 an ounce, on sales of 153,343 ounces, yielding revenue of US$234 million and earnings before interest, depreciation and amortisation (EBITDA) of US$54.8 million.
However, the various issues mean that OCG will fall short of 2019’s numbers, which saw production of 470,601 ounces of gold (and 10,255 tonnes of copper, from Didipio, which is suspended), at an AISC of US$1,061. This flowed through to a net profit of US$32 million, or 2 US cents a share. In 2019, Macraes produced 172,500 ounces, while Haile produced 146,000 ounces, Waihi 68,100 ounces and Didipio 83,900 ounces. This year, OCG expects total production of between 295,000 and 345,000 ounces of gold at an AISC range between US$1,150–US$1,250 per ounce sold. Macraes production down to between 140,000 and 150,000 ounces and Haile at between 135,000 and 175,000 ounces of gold at an AISC of US$1,100–US$1,400 per ounce sold (most probably toward the lower end of that production range).
On the plus side, the miner announced earlier this month that it was extending the mine life at Macraes by at least seven years. OCG has boosted the mine’s proven and probable gold reserves by 240,000 ounces, and over that time it expects Macraes to produce about 1.1 million ounces at an average cost of $US1,025 an ounce. With Haile, and the Martha Underground project currently under development at Waihi, which is expected to extend the life of the Waihi mine by at least ten years, the future is looking promising for OceanaGold.
Market capitalisation: $800 million
Three-year total return: +131.7% a year
FY21 estimated dividend: nil
FY21 production guidance: n/a
Analysts’ consensus valuation: $1.37
Bellevue Gold is not yet producing gold, but that’s not far off with the company progressing nicely in its plans to start mining what is one of the highest-grade gold deposits anywhere in the world (estimated to hold 860,000 ounces of the yellow metal at 11.6 grams per tonne (g/t) gold). Located in the Wiluna-Norseman gold belt of Western Australia, the Bellevue Mine was one of Australia’s highest-grade gold mines, producing 800,000 ounces at 15g/t gold between 1986 and 1997. It was closed and forgotten for more than 20 years, until BGL acquired it and started work on it in 2017, bringing modern exploration techniques to bear (much like Gold Road is currently doing at Yamarna).
The maiden (first) indicated 860,000-ounce resource figure includes a high-grade core of 480,000 ounces at 15.5g/t from the Viago and Deacon lodes, which both remain open in all directions. This means that as far as the drilling has gone in any direction, it has encountered mineralisation, leading the geologists to conclude they’re likely to find more. That mouth-watering prospect is the basis for BGL pushing the go-ahead button. The company has appointed a mining contractor to complete stage one works, which involves building a new portal to enable large-scale mining equipment to get access to the historical underground workings, linking up with an existing decline. With the company cashed-up after recently raising $135 million, further exploration and development work will be conducted simultaneously. All going well, the full progression toward mining (and production) could be green-lighted late next year.