It was Northern Star’s chief executive Stuart Tonkin who recently quipped that when the local gold price gets to $1800-$1900 an oz, all of Kalgoorlie lights up.

Tonkin was talking about how the stronger local gold price – it is up by almost $200 an oz since last August’s low – meant Australia’s miners could now mine lower grade ore while maintaining fat margins on the output.

There is a longer-term benefit to being able to do that, as mining material outside a mine’s reserves has obvious benefits to mine life which improves the market’s valuation of the mine.

While Tonkin was talking about how Kalgoorlie – the heart of the Australian gold industry – lights up at $1800-plus an oz prices, he could well have said every goldfield in the country lights up.

Well, almost all of them. Gold price fever has yet to catch on at the historic Sandstone goldfield, 400km north-west of Kalgoorlie in the East Murchison region.

But at least the arrival of $1800-plus gold – it closed last week at $1816 in the local currency – has delivered new momentum to plans by ASX junior Middle Island Resources (ASX:MDI) to fire up its mothballed Sandstone gold treatment plant.

The new momentum was reflected in Middle Island’s ability to pull in $1.4m from a recent entitlement to fund an exploration and acquisition push to make Sandstone a more robust project for its return to production.

Middle Island acquired the Sandstone project in July 2016 for all of $2.5 million and avoided the trap of turning the 600,000tpa processing plant back on immediately, based on remnant ore.

Doing just that has proved to be a trap countless times in the WA goldfields, usually because hungry treatment plants have been restarted without a supporting resource/reserve base.

‘Substantially undervalued’

Middle Island has said from day one that the Sandstone mill would only return when it has defined adequate gold resources, at an acceptable grade, to ensure sustainable production.

It has been making headway in its plans, with the company’s gold resource base now standing at of 537,000 oz. But there is more work to do, as the group’s meagre 0.5c share price for a market capitalisation of $5.2m reflects.

The company’s lowly market value is a source of frustration to the company, prompting managing director Rick Yeates to mount a case that the stock was cheap.

“Excluding any value attributed to the processing plant, the company’s enterprise value (EV) per resource gold ounce of $2 compares with a peer average EV of $29/resource ounce for near-term junior gold developers and explorers,” Yeates said.

“As such, Middle Island remains substantially under-valued relative to its peers and, therefore, an excellent investment, particularly against a background of a rising gold price and increasing M&A activity in the gold sector.”

Yeates talks about a dual strategy to secure the resource/reserve base needed to restart Sandstone. It involves the systematic exploration of Middle Island’s own exploration tenements, and wrapping deposits owned by others in the region in to the project.

To date, the exploration effort on its own tenements has pretty much been focussed on known or “brownfield” opportunities. The exploration push this year will focus more on new opportunities or a “greenfields” approach.

When it comes to the acquisition of deposits or advanced exploration projects owned by others in the region, Middle Island has a whip hand because of its ownership of an existing mill.

It has about a 150km advantage over other mills in the East Murchison competing for additional ore sources.

And if there was a big trend to emerge in the junior sector last year, it was the increase in M&A activity as cashed up miners began snapping up juniors without the financing in place to build their own treatment plants.