Millenium Minerals is in sight of a recovery and due for a market re-rating, writes Barry FitzGerald in his weekly Garimpeiro column

Finding value among the gold producers has gotten tougher thanks to strong gains posted by most of the leading stocks since September.

Even gold’s recent see-sawing around the $US1300 per ounce level hasn’t made things easier for punters.

But dig deep enough and some value stories can be uncovered.

East Pilbara gold producer Millennium Minerals (ASX:MOY) is a case in point.

A plunge into the local gold producers by local and overseas investors that has driven the share prices of gold producers sharply higher since last September pretty much left Millennium behind, for good reasons.

Millennium was placed in intensive care 2.5 years ago when it was carrying too much debt and struggling to keep oxide ore supplies up to its Nullagine operation from a number of open-cut scratchings along a 40km mineralised trend.

But now it is in sight of a full recovery thanks to the efforts of a new management team — and the scene is set for a market re-rating early next year, if not before.

It is towards the end of the year that a more robust and longer lived Millennium will emerge, prompting analysts to start attaching price targets to the stock well in excess of the current market price of 17c a share, something of a rarity in the gold space.

Hartleys on April 10 placed a 26c price target on the stock and Argonaut came out with a 31c price target on April 27.

Millennium Minerals shares over the past year (ASX:MOY).
Millennium Minerals shares over the past year (ASX:MOY).

Millennium has produced more than 400,000 ounces from Nullagine since start-up in 2012 at an annual average output of 75,000-80,000 oz based on shallow and easy-to-treat oxide resources.

The bigger and better future ahead of the group is based on bringing Nullagine’s extensive but difficult-to-treat sulphide resources in to the frame.

To treat the sulphide ores a sulphide processing circuit is being added to the Nullagine treatment plant at a cost of about $15 million.

The addition to the treatment plant will establish Millennium as an annual producer of 100,000 oz of lower-cost gold, as well as lengthening mine life from the current 2.5 years on oxide feed alone to well over five years on a combined oxide/sulphide basis.

Supporting the push is a stepped up exploration effort ($15 million budgeted for 2018) for both shallow oxide material and the soon able-to-be-treated sulphide mineralisation. Moving to the 100,000 oz annual rate should take effect from the end of the year.

As it was, production from Nullagine in the March quarter was 20,323 oz at an all-in sustaining cost of $A1295 an oz (the current Aussie dollar gold price is $A1732 an oz). It was considered a strong result in what is normally a rain-affected quarter.

But the next couple of quarters are going to be a bit tougher as mine scheduling in support of the 100,000 oz-a-year future takes shape.

Production for the current June quarter is forecast by the company at 16,000-18,000ozs, with a corresponding increase in all-in sustaining costs to $A1,500-$A1,600 an oz due to the combination of additional pre-stripping costs at the Golden Eagle deposit and the lower production level.

The tougher couple of quarters before the higher production rate and lower cost of production takes shape is likely to be the reason why Millennium is being held back at 17c a share while other producers not in a transformational phase have taken off.

Still, the transformation is not far off now. Millennium has forecast production will increase in the fourth quarter to 25,000 oz-plus at an all-in sustaining cost of $A1,100 an oz.

Apart from enabling Millennium to achieve its recently announced annual production guidance for CY 2018 of 75,000-80,000 oz at a cost of $A1280 to $A1350 an oz, achieving the fourth quarter forecast will be a signal that the new Millennium has arrived.


This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.