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Gold juniors have good reason to keep a wary eye on gold prices, which dipped to their lowest point in over two months recently.
Increasing bond yields, a stronger US dollar and better than expected US economic data made their mark before prices rebounded to $US1,784.05 ($2,267) per ounce.
While the precious metal is typically seen as a hedge against inflation, Oanda Corp senior market analyst said the runaway rally in global bond yields had delivered it a fatal blow.
Even investment guru Warren Buffet’s Berkshire Hathaway has sold its entire position in Barrick Gold.
However, the US job market continues to shed jobs with weekly jobless claims increasing by 13,000 to 861,000, up from the previous week’s already upwardly revised estimate of 848,000.
Speaking to Stockhead, Lion Selection Group executive director Hedley Widdup said gold moved very strongly in response to inflation, noting that the market could react if real yields remain persistently low.
“The pinch point for gold juniors either starting or about to start production is pretty obvious as far as a reduction in margin goes,” he noted.
However, Widdup added that single asset gold developers in the modern market are probably most leveraged right at the point of first production.
“To some extent that might well buffer any short term volatility, and I think if you were to be able to look into each individual company they may well hold off on selling what gold they make if there is a view the price might only have dipped temporarily to the extent that they can underwrite whatever banking they have in place,” he explained.
“I don’t think it will slow financing – the majority of money to build new projects comes from debt, and if that is in place equity tends to follow.
“Bankers won’t give you anywhere near spot in their assumptions when they work out what debt they will give you – so if someone was banked today it might be on an assumed price of say US$1500/oz average over the next three years – there is still a ‘bonus’ then of $290/oz or so to spot.
He added that companies would not hesitate when debt was offered and also doubted that banks would wait as they manage price risk through hedging.
Several small caps have already skipped past any current concerns, having already brought their projects into production either recently or for some time now.
Earlier this month, Ora Banda Mining (ASX:OBM) brought the previously producing Davyhurst project back into production after completing remedial work programs in late January.
Processing operations are currently stable and running at a throughput rate approaching 1 million tonnes per annum, though work is ongoing to ramp-up towards the processing plant’s rated capacity of 1.2Mtpa.
The company already has more than 200,000t of run-of-mine stocks currently available for processing.
Additionally, infill drilling to upgrade the inferred resource at the Riverina South project – currently 650,000t at 2.1 grams per tonne (g/t) for 43,000oz of contained gold – has returned some high-grade hits.
Wiluna Mining (ASX:WMX) is an existing gold producer with the ambitious goal of achieving more than a quarter of a million ounces of gold production per annum.
Under the first stage of its sulphide plan, Wiluna plans to transition from its current production of 61,000oz per annum to producing about 120,000oz per annum by October 2021 using the current crushing and milling circuit and a new 750,000tpa concentrator.
Feasibility study work into the Stage 2 sulphide development envisages production of more than 250,000oz per annum in gold doré and gold concentrate.
Already, the company has achieved consistent production in the December 2020 quarter while reducing all-in-sustaining costs (AISC) from $2,012/oz in the previous quarter to $1,675/oz.
Alkane Resources (ASX:ALK) produced 15,919oz of gold during the December 2020 quarter at an AISC of just $1,201/oz.
It expects to produce between 47,000oz to 52,000oz at an AISC of $1,450/oz to $1,600/oz.
The company is currently in the process of securing approvals from the New South Wales government to develop the Roswell and San Antonio deposits.
Feasibility plans that include both open cut and underground mines at the two deposits are expected to be finalised in the coming quarter once the San Antonio indicated resource is completed.
In late January, Kaiser Reef (ASX:KAU) completed the acquisition of the producing A1 gold mine in Victoria and has set itself the target of processing 150,000t of ore per annum.
Work is also underway to address the company’s belief that very little exploration drilling has been undertaken beneath the mine’s existing mined lodes in recent times.
It has also flagged that tolling agreements with its neighbours could be explored o bridge any potential production shortfall from its own operation.
Beacon Minerals (ASX:BCN) produces gold from its Jaurdi project near Kalgoorlie, which achieved its first tonne of gold in December 2020.
Jaurdi produced 7,870oz of gold in the December quarter, about 12 per cent above the high-end guidance.
The strong performance has allowed the company to pay off its debts in October, leaving it debt-free.
Some other small cap goldies which are producing include Medusa Mining (ASX:MML), which produced 26,075oz of unhedged gold in the December quarter, West African Resources (ASX:WAF) and its Sanbrado gold operations in Burkina Faso along with gold juniors Rand Mining (ASX:RND) and Tribune Resources (ASX:TBR) and their shared EKJV mines.
While gold’s volatility may raise some doubt about whether new gold projects will go ahead, a number of gold juniors are already well progressed towards production while others remain viable even at far lower prices.
Capricorn Metals (ASX:CMM) is targeting first gold from its Karlawinda gold project in the June 2021 quarter with development costs expected to be in line with the $165m to $170m budget.
Most of the processing equipment and fabricated steelwork has been delivered to site while equipment installation has commenced.
Karlawinda is expected to produce between 110,000 to 125,000 ounces of gold per annum at a targeted AISC of $1,140 to $1,190 an ounce.
The project currently has an open pit ore reserve of 1.2Moz of gold that forms part of a broader resource totalling 2.1Moz.
Emerald Resources (ASX:EMR) has also been making significant progress in both offsite supply and fabrication and onsite development for its Okvau project in Cambodia.
All activities are advancing in line with the development timeline and budget forecast with first production still on track for the second quarter of 2021.
Okvau is expected to have +100,000oz per annum gold production at an AISC of $US754/oz.
Post-tax internal rate of return and net present value, both estimates of a project’s profitability, has been calculated at 78 per cent and $US333m respectively using a $US1,700/oz gold price.
Other gold juniors looking at bringing their projects into production in the near term include 3D Resources (ASX:DDD), Genesis Minerals (ASX:GMD), Moho (ASX:MOH) and Great Southern (ASX:GSN).
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