Kristie Batten: Ora Banda building gold exploration momentum

One of Australia’s top mining journalists, Kristie Batten, writes for Stockhead every week in her regular column placing a watchful eye on the movers and shakers of the small cap resources scene.

Growing gold producer Ora Banda (ASX:OBM) is answering its critics via the drill bit.

Last week, investment bank Barrenjoey initiated coverage of Ora Banda with an overweight rating and $1.20 price target.

Analyst Daniel Morgan said Ora Banda had an attractive growth outlook and projected free cashflow generation of around $180 million from its Davyhurst operation in Western Australia this financial year.

However, he pointed out that, versus its peers, the company had a short reserve life of 190,000 ounces of gold, or 1-2 years.

“The sustainability of this is the key debate for the market,” he said.

“Our overweight rating is driven by a view that Ora Banda will, over the next 12 months, significantly increase drilling data, which can expand the resource and may justify a mill expansion.

“Exploration outcomes are both the largest upside driver and downside risk to our valuation.”

On Friday, Ora Banda took a first step towards addressing that downside risk with the release of its latest resources and reserves statement.

Reserves increased by 24% to 236,000oz, while the company added 160,000oz to resources to 2.11 million ounces.

Drilling ramping up

Ora Banda has allocated $73 million for exploration and resource drilling this financial year, equating to about 360,000m.

The work will target extensions to the mine life at the Riverina and Sand King underground mines and prove up prospects including Little Gem, Waihi and Round Dam.

Ora Banda managing director Luke Creagh told Stockhead last month that one of the main attractions when he joined the company three years ago was the exploration potential.

“We’ve got 140km of strike covering two regional geological formations, the Zuleika Shear and Ida Fault, and no one’s ever looked for undergrounds – that, to me, is the exciting thing,” he said.

“The other thing that I think people forget in the industry is how much money it takes to drill out a deposit from scratch and get it into production.

“So for us, over the last three years, being significantly capital constrained, to have found two undergrounds, start them and get them up to steady state, has been pretty awesome, but it probably points to the prospectivity of the belt.

“I don’t think they’ll be the only mines. They’re just the first two we’ve drilled.”

Early wins

A little over two months into the new financial year and the company is already having plenty of success.

The second phase of drilling at Little Gem returned a best hit of 8.8m at 6.3g/t from 320m, expanding the high-grade, multi-lode system to over 1km of strike.

The first round of drilling at the Round Dam Trend has identified a major new gold system, with results including 8m at 20.6g/t gold from 132m and 8m at 3.g/t from 119m.

Last week, Ora Banda reported two sets of results from advanced prospects.

Waihi is shaping up to become the third underground mine at Davyhurst after drilling intersected a new gold lode returning 13.5m at 6.1g/t gold and 8m at 8.7g/t, including 4m at 14.9g/t in the hanging wall of the historical Golden Pole mine.

The Waihi West Lode was also extended to over 350m vertical below surface with a hit of 3.9m at 29.5g/t gold, including 1.8m at 60.8g/t.

At Sand King, the mine’s mineralised footprint was extended with results including 14.3m at 5.3g/t gold from 502m and 18.7m at 8.9g/t gold from 490m, including 8.7m at 8.7g/t and 8.8m at 10.4g/t.

A hit outside the mine plan of 1.7m at 1371.2g/t gold was judged as the best gold drill hit on the ASX in the week to September 9 by Miner Deck.

Mill expansion plans

Ora Banda’s guidance for this financial year is 140,000-155,000oz of gold, up 60% on FY25, at all in sustaining costs of A$2850 an ounce.

Creagh said single-asset risk for any company was “scary”.

“For us, we’ve mitigated that from a mining perspective, with Sand King and Riverina,” he said.

“We haven’t yet mitigated it from a processing perspective.”

Davyhurst has processing capacity of around 1.2 million tonnes per annum, though Riverina and Sand King alone could produce around 1.6-2Mtpa and Ora Banda is third party milling material through Norton Goldfields’ Paddington plant.

A feasibility study is underway on a mill expansion to 3Mtpa, with the results due early next year.

“What that does is it turns the processing plant into a really regionally significant asset – low cost, good tonnes that you can then put more mines through, but also it lends itself to open pits,” Creagh said.

Barrenjoey is not factoring in the potential mill expansion in its base case valuation.

“Under an upside scenario where exploration is successful and Ora Banda sanctions a 3Mtpa mill expansion, our net present value would lift by 25-70% to A$1.40-1.90 per share,” Morgan said.

“The range of outcomes is dependent on assumed grades/costs.”

At Stockhead we tell it like it is. While Ora Banda Mining is a Stockhead advertiser at the time of writing, it did not sponsor this article.