Pic: EduardSV/iStock via Getty Images
Mining
Gold miners have hardly been the belles of the ball in recent times, among the sectors most stung by the rise in capex, opex and labour shortages wrought in the post-Covid economy.
But after a couple years fumbling the ball and floundering beneath their clearly overambitious guidance, the gold space is making a recovery.
Already costs appear to be getting under control, while spot gold prices in and around the US$1920/oz or $2900/oz level should deliver decent profits for those who can make their operations work.
By 2025, Goldman Sachs says the top six gold stocks in Australia outside Newcrest (ASX:NCM), which it began coverage of this week, should see an average $300/oz improvement in margins as costs stabilise, prices lift and out of the money hedges roll off.
GS likes some of the industry’s biggest players like Evolution (ASX:EVN), Regis (ASX:RRL) and Gold Road (ASX:GOR), but has neutral ratings also on Northern Star (ASX:NST), De Grey Mining (ASX:DEG) and Capricorn Metals (ASX:CMM).
Before they roll out their quarterly results we have a string of early production numbers out today.
Towards the upper end of guidance was Westgold Resources (ASX:WGX), which delivered 257,116oz at costs anticipated to be in the middle of its $1900-2100/oz AISC range.
That was against guidance of 240,000-260,000oz, with Q4 production of 68,377oz including record input from its Bluebird mill at Meekatharra.
Westgold finished FY23 with $192m in the bank after a $24m cash build in the June quarter, up from $190m a year earlier.
However, it came after the company appeared to call off its pursuit of neighbouring explorer Musgrave Minerals (ASX:MGV) after the junior target offered its hand in marriage to Ramelius Resources (ASX:RMS) in a $201 million mostly scrip offer including a 4c per share cash sweetener.
Westgold had made its own off-market offer directly to MGV shareholders for the owner of the 927,000oz Cue Gold Project at a rate of 1 WGX share for every 5.37 MGV shares in their portfolios. It never received the approval of Musgrave’s Rob Waugh-led board.
Westgold’s MD Wayne Bramwell told Stockhead the Musgrave deal was a want, not a must for the Mid-West gold miner.
“It’s really easy to get white line fever in M & A,” he said.
“We don’t have that, we’re far more disciplined about how we deploy the shareholders’ funds.
“We thought our price was full and fair and if someone saw more value in it, so be it.”
Bramwell said Westgold’s growth plans would now focus on organic opportunities within its own portfolio, cornerstoned by three processing plants at Bluebird, Tuckabianna and Fortnum.
More generally, he thinks cash flow generation will grow from the mid-tier gold sector over the next 12-18 months with miners starting to get on top of their cost base.
WGX’s hedgebook also ends in July, with the company seeing falling diesel, steel and ground support prices helping the bottom line, though Bramwell said labour costs remained ‘stickiest’.
“Salaries aren’t going back to 2019 or 2020 but… the expectations may have moderated,” he said.
“From our perspective, what I’m most happy about is the amount of people who are returning back to our business.
“We still, like all our peers, suffer from a higher turnover.
“(But) the turnover we’re having now is the people that we’re bringing back into the business have higher capability, which is for us key to operational performance.”
Westgold paid a maiden 2c per share, fully franked, dividend in 2021 but ditched its payout after a tough year in FY22.
Bramwell said the company was aiming to be a consistent dividend payer once its turnaround is complete, flagging a personal belief that the dividend policy should shift from a profit linked payout to a percentage of free cash flow, similar to the model used by Evolution Mining (ASX:EVN).
Westgold will report its full year financials in August.
“I can’t speak for the full board but my personal view as the MD is we have to start to look at a dividend policy, more akin to Evolution’s which is predicated on a percentage of free cash every year as against net profit after tax,” he said.
“I just think that if the business generates free cash we should modify the dividend policy such that the shareholders can have an expectation that if we’re successful a percentage of it will be returned to them.”
Red 5 (ASX:RED) became a serial raiser last year as it watched timelines on the ramp-up of its King of the Hills mine near Leonora in WA’s Eastern Goldfields blow out.
But it finally has something to crow about, announcing a third straight month of record production from the historic open pit and underground gold mine, turning out 24,033oz in June.
That saw the producer generate 61,705oz for the three months to June 30 and 102,572oz for the half year, towards the top end of its half-year guidance of 90,000-105,000oz.
RED expects all in sustaining costs to be within its $1750-1950/oz guidance range when it reports its financials on July 27.
Following a plant shutdown in May, the new King of the Hills plant is operating at an annualised runrate of 5.5Mtpa, well above its original 4Mtpa design capacity, something RED expects to continue in FY24.
Alkane Resources (ASX:ALK) meanwhile deliver 70,253oz from its Tomingley mine in NSW for FY23, towards the upper end of its upgraded 65,000-73,000oz guidance range.
It expects costs in the middle of its $1550-1650/oz range.
The company, which is also the owner of the large Boda porphyry discovery in the Lachlan Fold Belt, finished the quarter with $107.2m of cash, bullion and listed investments.
“Tomingley continues its outstanding performance, consistently meeting or exceeding expectations. With approval granted to extend the life of Tomingley past 2030, at increased production rates, and our growing Boda and Kaiser resources, we’re looking forward to the year ahead,” Alkane MD Nic Earner said.
“Alkane’s board and management acknowledge and thank the employees and contractors of the company for their strong and continued commitment to safety, production and exploration performance.”
In a fine rendition of The Beatles’ Nowhere Man, the materials sector has moved exactly 0.0% this morning amid a mixed day with humdrum gold and battery metals cancelled out by small gains for iron ore producers.
That came amid stagnant commodity prices overnight and limited activity in the United States where they’re celebrating Independence Day.
We thought it was a controversial decision to continue to stop markets in the annual celebration of the Will Smith flick in the post-slap era, but an $817 million box office draw remains something to admire.
Mining
Mining
Mining
Mining
Mining
Mining
Get the latest Stockhead news delivered free to your inbox.
