Ground Breakers: Dacian Gold scales back Mt Morgans as inflation bites
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Gold miner Dacian Gold (ASX:DCN) has spent years trying to engineer a turnaround story after it struggled in the early days at its $200 million Mt Morgans gold mine near Laverton.
For three years mining veteran Leigh Junk, famed for his role in the revival of Kambalda’s nickel industry in the early 2000s and leading an impressive makeover of Doray Minerals before its merger with Silver Lake Resources (ASX:SLR), has tried to repeat the dose at Dacian.
Today he has finally thrown in the towel after the company warned it would stop open pit mining at the Jupiter deposit within the month, citing rising costs as it looks to scale back.
Dacian, under new CEO Dale Richards, will keep its underground operations going until developed stopes have been mined in the first quarter of the new financial year, with open pit mining at its new Redcliffe hub expected to start once approvals have been granted.
But much of the feed now looks like it will come from 5Mt of low grade stockpiles starting in the September quarter as Dacian looks to put in place a “leaner operating model”.
It also means the end to contractor Macmahon’s (ASX:MAH) time at the Jupiter Pit, with the company saying it will be able to deploy workers to other sites given the current labour shortages in WA.
Dacian chair Mick Wilkes fingered the current inflationary environment as the reason for the reshuffle.
“In light of the current high inflationary environment, the board has taken the decision to reset the company strategy by discontinuing the current open pit mining operations at Mt Morgans,” he said.
“In doing so we are pivoting to exploration and a focus on the significant potential we see beneath and alongside the Jupiter open pits. This along with the strategic value of our processing facilities and infrastructure in the Laverton Leanora gold belt underpins the company.”
Dacian shares were hammered, dropping 36.8% this morning. The $116.1m firm has seen its share price fall 90.7% over the past five years. Ouch.
The gold producer does forecast at least that it will have $17m cash and gold on hand after a $12.75m debt repayment, with plans to drill Jupiter and high priority exploration targets in FY23.
Experts are dubious that China’s efforts to set up a central buyer for iron ore will actually knock down iron ore prices.
But markets have braced for the prospect anyway, with futures down below US$125/t this morning.
That has led to losses among the three big iron ore miners of more than 3% each, with Rio Tinto (ASX:RIO) the worst performer at a 3.81% drop.
Commbank metals analyst Vivek Dhar said Chinese fiscal policy, and not the hefty concentration of iron ore supply among the world’s four big exporters BHP, Rio, FMG and Vale, was a more likely reason for current high iron ore prices.
He thinks, as do other commentators, that the Chinese planning authority the NDRC has its work cut out getting scores of small privately owned mills to buy into the idea of having a central bulk iron ore buyer to negotiate prices.
“Recent consolidation amongst China’s state‑owned steel producers will help bring a more unified voice to China’s steel sector,” Dhar said.
“However, the sector is still quite fragmented and very price responsive. A key detail of the initiative is that Chinese steel mills would be told to report their consumption plans for consolidation into a combined figure for negotiation with big overseas suppliers.
“While the larger state‑owned steel mills are capable of this forward planning and accepting the risks that come with that, it is unlikely that private steel mills will be in the same boat.
“Private steel mills would particularly be hesitant to forward plan if steel mill margins are low to negative.”
Gold stocks have proven their safe haven status today as the sole buffer to bigger losses for the Materials sector, which has been hit with a 2.83% fall on Friday morning.
Spot gold rose overnight in the direction of US$1850/oz with Evolution Mining (ASX:EVN) the strongest large cap mover with a 5% gain.