Barry FitzGerald: Corporate tension sets tongues wagging around Geopacific's PNG gold

Gold’s march to record levels is pulling previously overlooked ASX-listed explorers and developers in from the shadows.

Geopacific Resources (ASX:GPR) is an example. The stock has wriggled its way from 1.5c at the start of the year to 3.2c during the week, a gain of 113%.

It is a well known name courtesy of its Woodlark gold project on the island of the same name in eastern PNG.

For more than a decade now there have been various management teams that have had a crack at developing what is now a 1.67Moz gold resource.

But for one reason or another it never happened. Now there is a mighty tailwind in the form of $4200-plus gold providing all the incentive in the world for Woodlark to make a return.

Happy returns

Garimpeiro says ‘make a return’ because the island has a long history of gold production dating back to the first official discovery in 1895.

A gold rush led to the two company floats in Australia, one on the Sydney exchange (1899) and one on the Charters Towers exchange (1908).

World War I intervened after “official’’ production of some 220,000 ounces. Then there was a long break until the 1970s when BHP had the bright idea that Richard Nixon’s decision to end the gold standard in 1971 would be good for long term gold prices.

There’s been ownership changes since, with Geopacific becoming the new landlord after a slugfest between 2017-2019.

It has been busy too in recent times. A recently released scoping study on a 95,000 ounce-a-year development costing $326m arrived at a pre-tax net present value of $625m assuming a $2900/oz gold price.

Life of mine all-in sustaining costs were estimated at $1534/oz for the 1.14Moz of gold to be produced over an initial 12-year mine life from a low strip open-pit. Confidence in the resource is high, with 97% sitting in the measured and indicated category.

Use the end of June gold price of $3505/oz and the pre-tax NPV shoots off to more than $1 billion while the internal rate of return jumps to a pre-tax 58.5% from 40.5% at the end of June gold prices.

And here we are with gold at more than A4200/oz.

PNG prospects

It is interesting stuff for a company with a market cap of about $38 million. If Woodlark were plonked into the WA goldfields, Geopacific’s market cap would be many multiples higher.

But it’s not in WA. It is in PNG which has its challenges like most other places. And successive owners of the project seem to have done everything right when it comes to engagement with the local landowners.

More than $100m has been invested previously on things like drilling, development studies and infrastructure, as well as relocating the community near the main deposit and sponsoring a health clinic.

Garimpeiro also notes that Geopacific has an interesting share register. The Deutsche Balaton/Delphi/Sparta private equity group has a commanding 42.3%.

But the recent arrival on the register of the Hongkong-listed Lingbao Gold through a private $2.9m placement has introduced what could be called some competitive tension.

The Chinese group produced 725,000 ounces of gold from operations in China, Mongolia and Kyrgyzstan in 2023.

It said the investment in Geopacific was a “key step in our international strategic plan.”

Garimpeiro wonders if Lingbao has it sights on the Woodlark project. So he has no hesitation in declaring Geopacific is now a “situation” stock with all that implies.