Ground Breakers: De Grey shows gold fever is still alive in high mining times

You’ve heard any number of comments about how sad gold stocks are right now, with investors discounting gold miners after prices fell from last year’s record highs despite most of them generating super profits.

But as we heard from Hedley Widdup earlier in the week, the mining cycle is at 11 O’Clock, the time when speculative money starts to get thrown around like candy at a Bar Mitzvah.

One example of that is the volume and value of IPOs hitting the market in 2021, another is the incredible amount of capital being raised for companies that make a decent discovery.

By any measure De Grey’s (ASX:DEG) 6.8Moz Hemi – which could produce 473,000ozpa when it eventually opens – is a significant gold discovery.

But there is little doubt that a few years ago it would have struggled to raise the capital to grow the intrusive Pilbara gold mine as fast as it has.

The biggest WA gold discovery of the last cycle, Gold Road Resources’s (ASX:GOR) Gruyere never attracted more than $50 million in a single hit back when it was being drilled out during the downturn. It’s biggest raising, a $74 million capital injection, came post-PFS.

De Grey announced a new $125 million capital raising this morning, taking the total amount of capital raised to drill and study the exciting discovery to more than $250 million over the past two years. Mazel Tov.

That’s an incredible amount for what was just 18 months ago a junior explorer.

De Grey gold raising terms

De Grey has enjoyed another re-rate in its share price since the release of a scoping study which showed Hemi and the broader 9Moz Mallina gold project would be one of the world’s largest new gold mines.

While its shares are some way of the record high of $1.61 they hit in late April, they are up around 25% overt he past month.

It provided $1.56 billion capped De Grey the opportunity to raise the $125m at $1.10, an 8% discount to its 11-day VWAP since the release of the scoping study.

The funds, raised through a consortium of Perth brokers including Canaccord and Argonaut along with corporate advisers Azure Capital, will be used to continue resource extension and definition drilling as well as broader regional exploration ahead of a pre-feasibility study due in the second half of 2022.

De Grey Mining share price today:

OZ Minerals (ASX:OZL) not buying at the ‘top of the price cycle’

In a move reminiscent of upstart Northern Star’s (ASX:NST) emerging challenge to Newcrest (ASX:NCM) as Australia’s biggest gold miner, Sandfire Resources (ASX:SFR) appears to have thrown down the gauntlet to Australia’s largest pure play copper stock OZ Minerals to take its crown.

Sandfire paid US$1.865 billion ($2.6b) for the 100,000tpa MATSA Mining Complex in Spain while South32 (ASX:S32) made its own well-timed move into the commodity which scratched all time highs last week by picking up 45% of the world class Sierra Gorda mine in Chile.

Sandfire would have been staring down the barrel of a big drop off in production with the impending closure of the DeGrussa mine in WA next year. Its charismatic boss Karl Simich now has the copper and gold miner’s sights set on producing 500,000tpa by 2026 (something that would likely require some more big M&A).

OZ is on track for a very good 2021, upgrading its gold guidance from 205,000-228,000oz to 220,000-243,000oz after a strong third quarter and maintaining copper guidance of 120,000-145,000t.

It produced 33,794t of copper in the three months to September 30 from its operations in South Australia and Brazil along with 65,932oz of gold at cash costs of only US42.9c/lb and AISC of US106.7c/lb against current prices of more than US$4.50/lb.

OZ has internal growth options, with a final investment decision on the West Musgrave copper and nickel project due in the second half of next year.

But it also faced questions from analysts on a call this morning about whether it was interested in the MATSA and Sierra Gorda deals.

MD Andrew Cole thinks companies are paying too much for operating mines at the moment, saying OZ will focus its M&A strategy more on early stage projects it can develop itself.

“In terms of the probability of buying an operating asset right now, I think it’s very low,” he said.

“Everybody is looking to sell assets, there are not a lot of great assets in the marketplace, and we’re not looking to get big, we’re not looking just to add tonnes, we’re looking to create value.

“So simply buying assets at the top of the price cycle, we don’t think is a great idea unless you can bring real value to them in some way, shape, or form.”

“That’s why we’re largely focused on looking at earlier stage projects.”