Barry FitzGerald: Barton Gold's plan to become South Australia's answer to Capricorn Metals

“Garimpeiro” columnist Barry FitzGerald has covered the resources industry for 35 years. Now he’s sharing the benefits of his experience with Stockhead readers.

Alex Scanlon’s South Australian-focused Barton Gold (ASX:BGD) has distinguished itself by posting a December half profit of $3.11 million.

Big deal you say. But junior explorers/developers are almost always consumers of cash, not generators of the folding stuff.

The profit came from the sale of gold concentrates from a clean-up of the company’s Challenger treatment plant, which is on care and maintenance, plus a R&D tax refund.

Okay, maybe it is not a big deal.

But Garimpeiro reckons the profit – it takes to $12m the amount of cash pulled in by the company since its $15m IPO in 2021 to protect shareholders from dilution – is reflective of Scanlon’s of strategy to build Barton into the Capricorn Metals (ASX:CMM) of the SA gold scene.

It is a lofty ambition as the Mark Clark-led Capricorn is considered to be the amongst the best of the ASX gold stocks, if not the best.

Arriving at Capricorn in July 2019 when the market was not much interested in its low-grade Karlawinda deposit in the Pilbara, the former Regis/Equinox legend got the project into production in 2021, quickly establishing it as 120,000ozpa producer of low cost gold.

In the interim, Capricorn’s market cap surged from $85m on Clark’s arrival to more than $1 billion by the end of 2021. With expansion plans and the tailwind of gold price increases since, it is now a $3 billion company.

Barton’s golden vision

So Scanlon’s ambition for Barton to become the SA version of the Capricorn story is a lofty one all right. As it is, Barton was a 30c stock during the week for a market cap of $65m, or an enterprise value of about $56m after counting its cash-on-hand.

The former Seattle boy is methodical in his approach to growing the Barton story – set achievable and risk adjusted objectives and then take small steps to arrive at the final destination.

In the case of Barton, the final destination is to become a 150,000oz a year gold producer with bottom quartile costs within four or five years.

Underpinning the strategy is the assets that Scanlon brought to the market in 2021 that were previously owned by others – the Challenger mill, and the Tunkillia and Tarcoola gold deposits, all in the Gawler.

Leveraging off the sunk capital in the Challenger mill in the first instance to achieve a rerating of its market cap and credit status will be Barton’s first step ahead of the main event – the development of the planned 130,000oz a year Tunkillia project, 200km from Challenger, as a standalone project.

The two-step plan will initially involve a low-cost return of the Challenger mill (it’s the only one in the region) to production from open-cut ore sources, stockpiles and regional deposits like Tarcoola. It is not going to be big, say 20,000oz a year.

But it doesn’t need to be big in volume terms to generate lots of free cashflow thanks to the spectacular rise in the Aussie gold price to more than $4600/oz. That compares with gold’s CY2024 average of $3620/oz and the CY2023 average of $2940/oz.

Achieving producer status by returning Challenger to production will kick off the equity and credit rerating which Barton can then leverage off to give the development of Tunkillia some real momentum, not that the gold price surge hasn’t done that already.

The resource base at Tunkillia was recently upgraded by 120,000oz to 1.6Moz, or 62.9Mt at 0.8g/t gold, with 56% siting in the indicated category. Capricorn’s Karlawinda was developed on a reserve grade of 0.9g/t when the Aussie gold price was all of $2400/oz.

Barton has flagged it will deliver an optimised scoping study in to Tunkillia’s development before June 30 and that it will have much improved economics. Mind you, the earlier study work suggested robust economics anyway on a $3000/oz Aussie gold price assumption.

The views, information, or opinions expressed in this article are solely those of the columnist and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.