Barry FitzGerald: How to buy into 1 million oz of gold at the knockdown price of $8m - with a side of antimony

It is a rare thing for a junior explorer to have a 1 million-ounce plus gold resource under its belt within two years of listing.

But that’s just what Larvotto Resources (ASX:LRV) has achieved courtesy of its deal to acquire the Hillgrove gold-antimony mine near Armidale in NSW for the knockdown price of $8 million, including $4.89m in replacement environmental bonds.

The acquisition comes just ahead of Larvotto’s second anniversary on the ASX. For the vast majority of juniors, the two year anniversary comes up without a resource being established, and with funds from the IPO running out.

Larvotto’s Hillgrove acquisition breaks that pattern and means the stock is set for a re-rating as it sets about re-establishing Hillgrove as a significant producer from its high-grade 1.4 million ounce gold equivalent resource (1 million ounces of gold and 90,000 tonnes of high-value antimony).

The company was trading mid-week at 10.5c a share for a market cap of $23 million after shares associated with the acquisition are taken into account.

Larvotto’s good fortune has been at the expense of the formerly ASX-listed Red River Resources which went in to administration last year.

Red River acquired Hillgrove in 2019 and proceeded to spend $20 million on exploration and resource definition, as well processing tailings from the historic mining operation, ahead of completing a re-start study based on the hard-rock resource.

But Hillgrove had to be parked up in the September quarter last year when Red River hit trouble at its main undertaking, the Thalanga zinc-copper-lead mining operation in near Charters Towers in north Queensland.

A “fall of ground’’ in one of the mining stopes at Thalanga sent production in to a tailspin, with a shutdown to find unaccounted for explosives in the underground mine also not helping Red River’s cause.

In came the administrators, leaving Larvotto to strike a deal with the administrators to pick up the running at Hillgrove where gold, and the always critical metal of antimony (fire retardants, batteries, plastics, and growing high tech applications), have been mined on and off since the 1850s.

Larvotto won’t be rushing Hillgrove back in to production from the hard rock resource and its existing mine and processing infrastructure base which cost Red River, and those before it, some $200 million in capital expenditure.

It will first work up a case to bring it back in to full production, as well as following up the six priority exploration targets that Red River was planning to get cracking on before the issues at Thalanga brought things to a halt.

What exploration/resource extension work Red River was able to do at Hillgrove produced some impressive results, including an extremely high-grade zone at Bakers Creek (4.5m at 29.5 g/t gold and 0.3% antimony).

Super high grade gold with increasing depths can be a feature of gold-antimony systems. The Fosterville and Costerfield mines in Victoria, owned by Canada’s Agnico Eagle and Mandalay Resources respectively, are examples.

It is also an emerging theme at Southern Cross Gold’s (ASX:SXG) Sunday Creek project on Melbourne’s doorstep.

A feature of the Larvotto’s pick up of Hillgrove is that the funding package (share placement and rights issue at 7c a share) will see the Chinese investment group Gage Capital emerge with 19.9% of the company, and commodity trader Trafigura with 15%.

Gage had been talking to Larvotto before the Hillgrove acquisition became a happening thing as it rated the company’s existing exploration assets near Mt Isa (copper/gold/cobalt), in New Zealand’s North island (gold), and in Western Australia (gold/nickel/PGEs).

Given the Hillgrove pickup, it could be suggested that those exploration interests now come for free given Larvotto’s modest post Hillgrove market cap of $23 million.

All three of the exploration projects have been the subject of drilling programs, with assays pending.

Larvotto share price today

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