Investors still hungry for WA gold but are they overlooking the gems in these explorers’ portfolios?
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Investors are still clearly on the hunt for undervalued gold stocks, especially those focused on Western Australia, but they could also be missing other potential money-makers in their portfolios.
Gold was a big drawcard for the 60+ investors and stockbrokers that turned out to last week’s inaugural Investability event at Burch Family Wines in Subiaco in Australia’s mining capital of WA.
Investors didn’t bat an eyelid at Castle Minerals when it was solely focused on its gold projects in Ghana, but its recent pivot to Western Australian gold has seen investors sit up and take notice.
In April this year, Castle revealed it had picked up two new projects in the gold-rich Meekatharra region, which has an endowment of over 5 million ounces.
Before that announcement, the company was forced to withdraw an entitlement offer and had a market cap of less than $1m with shares trading at a tiny 0.4c.
But since then, Castle shares have climbed 275 per cent to 1.5c, raising its market value to closer to $4m, and it has successfully completed a “heavily oversubscribed” placement, adding nearly $1m to its coffers.
“Ghana is a good place to be, but given all the circumstances at the moment, we thought we would get a lot more traction for our shareholders by refocusing the company into West Australian gold,” managing director Stephen Stone told Stockhead.
“So that’s what we’ve been doing. Very quickly we’ve built up a position in the Meekatharra and Pilbara areas, and we are looking to add to that.”
Stone said investors seemed to be overlooking the value of its West African projects.
“There’s a lot of value there, but certainly the market is not reflecting that in the market cap of the company,” he said.
“So what we’ll be doing is looking to unlock some of that value, either through exploration, joint ventures or maybe a sale of some of our assets over there.”
One potentially valuable asset in Castle’s portfolio is a 4 per cent royalty, worth around $US5m at today’s gold price, over the Julie West project in Ghana.
That little gem has prompted royalty companies to come knocking on the company’s door.
Castle sold the Julie West project, which has a reserve of 73,100oz, to Azumah Resources some time ago and retained the royalty as part of the deal. Azumah was eventually taken out by its ~1.1-million-ounce (moz) Wa project joint venture partner Ibaera Capital for $30m.
Coincidentally, Stone used to be the managing director of Azumah.
“At today’s gold price, the chances of that ore being mined are quite good and if you multiply that by $US2000 an ounce, say 90 per cent recovery, you get quite a nice number in terms of royalties — about $US4 or $US5m that could flow to the company,” Stone told the investor gathering last Thursday.
“And that will be a mine, Azumah will develop that. So that’s something quite valuable and, yes, we have these royalty companies knocking on our door and saying, ‘can we buy that from you?’”
But Castle’s plan is to realise the value of its entire Ghanaian portfolio and it has already struck a multi-million-dollar exploration partnership with private West African company Iguana Resources.
“We think there’s a lot of value to be released from that, and again the prospectivity is sort of illustrated by the fact that I was able to do a deal with a company last year called Iguana,” Stone noted.
“They’re spending $US11.7m in three stages over five years to get an 80 per cent interest and it’s a really, really good deal. A bit of a sleeper in the company, it’s not really in the market cap, but certainly something that we’ll be unlocking and we’re working on doing that now.”
Meanwhile, investors have been tuned into Hammer Metals because of its project in the gold fertile Yandal region of Western Australia that is host to over 24 million ounces.
The company’s share price is up 430 per cent to 5.3c since the market bottomed in March this year.
Hammer is again on an upward trajectory after recent news that drilling at Target 1, within the North Orelia prospect at the Bronzewing South project, confirmed a shallow 2km-long gold trend.
This rising tide has also been helped by news the company picked up more ground in the Yandal gold belt from Alloy Resources (ASX:AYR) in late July. The targets are on trend and near Northern Star’s (ASX:NST) Julius (335,000oz) and Ramone deposits.
But Hammer also has 2,100sqkm of ground, complete with defined resources, in Mount Isa that is being taken care of by Japanese government-backed heavyweight Japan Oil, Gas and Metals National Corporation (JOGMEC).
The reason it’s overlooked is because the primary commodity is copper, with gold as a by-product.
Managing director Dan Thomas told Stockhead that’s because the investor focus appeared to be more directed at pure gold plays.
“I think maybe what we’re seeing in our portfolio is we’re valued on our gold assets and our gold assets alone, and we don’t get that uplift from the other assets that we also have in our portfolio,” he said.
“But the interesting point with those assets at the moment, strategically we’re quite cognisant of what our investors are looking for and we’re not spending our funds and advancing our Queensland portfolio. We’re actually utilising some joint ventures over there.
“We’ve got JOGMEC spending $6m over five years to drill a bunch of holes for us. This year we’ve won $300,000 in government funding out of the Queensland state government to drill a couple of holes and to advance some of those exploration programs.
“So I think as a package, we’re undervalued.”
Wiluna Mining’s story is slightly different to Castle and Hammer, with the producer aggressively pursuing production expansion as part of its turnaround strategy.
The company was formerly Blackham Resources, a struggling junior gold producer, but following a recapitalisation and the installation of new management, it is working hard to reverse its fortunes.
The rebranded Wiluna had to turn to overseas investors to shore up the recapitalisation funds and it received a strong response – banking $52m from investors and securing an upsized $61m financing deal with a major commodity trader.
Blackham is working hard to build out its mining inventory to support a new sulphide concentrator, scheduled to start production in September next year to boost annual production to 120,000oz.
The current underground sulphide resource at Wiluna averages 4.8 grams per tonne (g/t) but historically the average grade mined was around 7-8g/t.
According to Wiluna, every 1g/t increase in the grade could deliver an additional 25,000oz per annum of production in stage one and 50,000oz per annum under the company’s stage-two scenario.
“All the drilling we’ve done so far in the staged areas across the mine are giving us more ounces and better grade,” executive chair Milan Jerkovic said.
“So hopefully that turns into better numbers.”
At the current gold price of over $US2000, much lower grades become economic and Wiluna has already mined material grading at around 0.5-0.6g/t sitting in stockpiles that are now profitable.
“If you’re not mining it and it’s on the surface and just sitting around, you can probably halve that grade and still make a margin,” he told Stockhead.
“But at this gold price you can see a substantial opening up of what’s mineable in your mineral inventory.”
Jerkovic said the key to Wiluna’s success is for the company to demonstrate that it can come up with a “decent mine plan” and show investors just how profitable it can be.
“This is a very large fertile geological system that just hasn’t had the spending on it in the last 30 years compared to Jundee, Kalgoorlie and Gwalia because of ownership changes and weak companies with no balance sheets to actually do the work, and we’re trying to change that,” he said.
While most investors came for the gold stories, there was one keen investor that was hoping at least one would say they were getting into silver.
Posing the question: “are you interested in any silver projects?” to all three companies, only one confirmed silver may be a consideration.
Wiluna’s Williamson mine could comprise about 30 per cent silver by volume, according to Jerkovic.
“I am interested in producing anything that will make us a profit,” he said.
Hammer’s Thomas, meanwhile, said silver was not on the horizon for his company.
“At this stage silver is running great, I think for us at the moment the focus is primarily on gold,” he said.
“I have enough investors worried what we’re doing with our copper assets to take on a third commodity.”