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Mining
When former Northern Star (ASX:NST) and Saracen boss Raleigh Finlayson was first revealed as the new face of a rebranded Genesis Minerals (ASX:GMD) the logical conclusion was that the Goldfields boy had tired of the suits and wanted to get back to his roots, building an exploration and development company from the ground up.
He hinted as much in comments he made after taking over the 2Moz gold explorer.
But three hidden weapons made it the perfect launching pad for a consolidation play that could turn Genesis and Finlayson into kingpins in the rich Leonora mining domain, where gold has been poured since before future US President and globetrotting engineer Herbert Hoover ran the Gwalia mine in the late 1890s.
First was the gravitas and market recognition Finlayson’s name leant to Genesis. He is renowned for turning Saracen from a $50m minnow with a single mine into part of a $16 billion mega merger with NST that consolidated Kalgoorlie’s Golden Mile under a single owner for the first time in its long history.
The company’s share price has exploded 75% since Finlayson took a stake and was announced as MD, giving the now $300 million company’s scrip the weight needed to wheel and deal.
Second was its ground position in Leonora, which gave the company the perfect geographical base to square up potential targets in one of WA’s prime areas of mining real estate.
Third was the onset of inflationary pressures, labour shortages and management failures at miners in the region, which opened a door for a cashed up and well-supported explorer to engulf miners with great infrastructure in tough times.
When Dacian Gold (ASX:DCN) suspended open pit mining at its Mt Morgans gold mine last month Finlayson’s window of opportunity opened.
Talks are also ongoing between Genesis and St Barbara (ASX:SBM), owner of the famous Gwalia mine.
St Barbara is under pressure after high profile issues at its Simberi and Atlantic operations in PNG and Canada, but Gwalia remains a sought-after asset.
SBM got a shot in the arm as it delivered 86,403oz in the June quarter to make its 275,000-290,000oz guidance range with full year production of 280,746oz.
191,459oz came from Gwalia, the key to any consolidation play in the Leonora district.
With a scrip deal agreed between Genesis and Dacian’s board which shareholders appear likely to back, Finlayson looks like he will pick up Dacian’s Mt Morgan mill — replacement cost $150-160 million.
But it seems unlikely he will stop there, something that has juniors boasting millions of ounces of gold resources within a 150km radius taking notice.
One of those juniors is recently listed Cavalier Resources (ASX:CVR), which kickstarted a 5000m drilling program and pre-feasibility study at its 101,000oz Crawford gold project in recent days.
Crawford is located just 45km from the Mt Morgans mill, and executive technical director Daniel Tuffin is watching the Genesis manoeuvres like Justin Langer used to eye the pill at the start of a Test match.
“Ral acted swiftly and he’s got his mill now,” Tuffin said.
“He’s got the feed there but now it’s just a matter of does he need more and will he look at Cavalier and Kin and M2M and the like or will he focus now on what he’s got and develop up the larger Saracen Mark II in Genesis?”
How did the impetus for a consolidation play in Leonora come about?
Tuffin thinks it has something to do with the bullish IPO market seen in hot markets in recent years. More than 100 resources IPOs listed in 2021, for instance, many focused on the region.
Those companies have picked up ground previously ignored by production focused majors, who have seen their mineable reserves whittle away as they prioritised returns and safer brownfields drilling over greenfields exploration.
“So the existing mine sites that were there maybe they dropped that ground, maybe they were land farming with other large guys in the area; that occurs quite a lot in the Goldfields where they sort of sit on it and hatch an egg for 20 years,” Tuffin said.
“So now it’s just where we are in that sort of M&A cycle where we’re starting to get these IPOs coming through and have developed up some resources and some ground, perhaps the other miners in the area haven’t been paying much attention, or now realise they need that feed.”
Could someone else have been the kingpin?
Other more cashed up miners could have if they’d had the will or interest.
St Barbs already engineered the takeover of Bardoc Gold last year, picking up its 3Moz Aphrodite and Zoroastrian projects closer to Kalgoorlie.
While the trucking distance to Gwalia is substantial, Aphrodite appealed to St Barbs given it will need more sulphide feed to justify the addition of a sulphide processing circuit to its long under-fed 1.4Mtpa mill.
South African giants AngloGold Ashanti (ASX:AGG) and Gold Fields have long been known to be short of mill feed for their Sunrise Dam and Granny Smith gold projects near Laverton respectively.
The multi-million ounce producers have been absorbed with other priorities.
Finlayson on the other hand set a goal in February to make Genesis a 300,000ozpa producer able to bridge the gap between the junior gold sector and the $5 billion-plus market caps of Australia’s three biggest gold producers Evolution (ASX:EVN), Northern Star and Newcrest (ASX:NCM).
With a flurry of M&A he will speed up that process.
“I’m not the inside the tent, I don’t speak to Ral, but looking at what he’s done with Genesis, this was planned, this was long in the making,” Tuffin said.
“They knew what they needed to do, they could see the consolidation plays occurring in Leonora and they acted swiftly once he came in and took control of the board.
“I think a few of the larger players in the area have dropped the ball, they’re not nimble enough, they haven’t moved quick enough.”
Mt Morgans has had a tough run since it poured first gold under founding boss Rohan Williams to much fanfare back in 2018.
One issue has been that its sources of mill feed have just not stacked up.
The hardness of the ore in its baseload Jupiter Pit has also had an impact on costs. If Genesis can truck the softer high grade Ulysses ore, which grades 6.4g/t in its 363,000oz high grade core, Genesis thinks that could be a solution to those pressure points.
Tuffin says Cavalier’s Crawford, which has 20,000-30,000oz of soft oxide ore at shallow depths at around 1.5g/t, will be prized for its blending qualities by mills in the district.
“We’re hoping to have Crawford ready to be able to be mined by the New Year,” he said.
“That 20,000-30,000 ounces of oxide material slots into any mill in the area that are running at about one and a half grand with time. That slots in anywhere around there.”
Alongside the aforementioned names there are a host of companies active in the Leonora region.
Here are some stocks boasting significant gold resources who could fall under the Genesis microscope.
Spun out of Peel Mining (ASX:PEX) a few years ago, Saturn owns the bulk, low grade Apollo Hill gold project, which it has nearly tripled in scale since listing back in 2018.
Sitting along the rich Keith Kilkenny Shear to the south of Dacian’s Mt Morgans and Gold Fields’ 7Moz Wallaby deposit, drilling over the past four years has added 964,000oz to take Saturn’s bounty to a hefty 76 Mt at 0.6g/t for 1.47Moz.
Our fearless market-moving Garimpeiro columnist Barry Fitzgerald has his eyes on Saturn as one of two junior goldies well-placed to be folded into a broad consolidation play in Leonora.
“The grade is not the highest around but Apollo Hill is a bulk tonnage/low cost proposition from a heap leach operation not unlike some of the world’s most profitable gold mines in the US. Heap leach gold operations are a bit of a novelty in the Australian scene but actually provide 46% of the world’s annual output from an average grade of 0.7g/t gold,” he said.
“Saturn is progressing the project to the preliminary feasibility study stage with a potential 10 million tonne-a-year operation probably good for annual output of 100,000 ounces. Apollo Hill an interesting one that has broader implications for both the Leonora district, and WA’s goldfields generally.”
Red 5 is perhaps the largest player in the region outside of the South Africans which can comfortably stand on its own two feet without consolidation right now.
Marooned amid an environmental crackdown a few years ago against miners where it was operating in the Philippines, Red 5 cracked a deal with Saracen and Gold Fields in 2017 that netted the Darlot and King of the Hills gold mines.
KotH was supposed to be a high grade sweetener for Darlot, but exploration reimagined the historic deposit as an open pit with one of WA’s largest ore reserves at 2.4Moz.
That has given it a big 16-year mine life, with a 176,000ozpa operation expected to hit commercial production this quarter after a $226 million development which includes the construction of a new 4.7Mtpa processing plant.
Located some 30km north of Leonora, Red 5 is a relatively big player with a market cap of over $580 million. It can certainly stand alone for the time being and any potential acquirer would probably want to wait and see what the new plant looks like in operation.
But it is worth remembering all of the region’s big mines including Gwalia, KotH and Carosue Dam were once in the hands of a single company, Sons of Gwalia.
That gold miner collapsed in the early 2000s amid bad hedges and hefty debts, but there is a major link. Bosses Chris and Peter Lalor happen to be the Raleigh’s uncles.
Can anyone say dynasty?
If Finlayson can massage the boss at St Barbara, a future merger with Red 5 could be the ultimate family reunion.
Another one Garimpeiro, aka Barry Fitz, is tipping on. Kin was one of the rising stars of the gold space before canning its well advanced producing plans for the Leonora Gold Project in 2018 in favour of a return to exploration.
It was in the sights of St Barbara last year but major German shareholder Delphi wasn’t keen to listen to offers, scuttling a proposed takeover.
Kin boasts a resource base of over 1.2Moz to the east of St Barbara across its Cardinia, Raeside and Mertondale West gold projects.
“A new resource estimate is in the works and something around 1.5 million ounces would not surprise,” Fitz says.
“St Barbara actually had a crack at Kin in October last but the indicative 16c a share offer did not see the light of day because it was clear Kin’s main shareholder, the German family company Delphi with 30%, would not support an offer at that price.
“St Barbara continues to hold an 18% stake in Kin as a legacy of the tilt. So it can be assumed Kin will feature in the consolidation plans of St Barbara and Genesis, either as a combination or separately.
“Having said that, Kin is not far off getting to the 2 million ounce resource base where it could get cracking on becoming a 80,000-100,000 ounce-a-year producer in its own right, either through a standalone development, or through a toll treatment deal with one of the region’s hungry mills.”
Since listing late last year, Mt Malcom has hit the ground running at its 270sqkm of tenure at the Malcolm gold project in the Central Eastern Goldfields of WA.
The gold explorer is hoping to strike paydirt in and around the multimillion-ounce Leonora and Laverton goldfields in WA.
MD Trevor Dixon told Stockhead last month that drilling to date at the Golden Crown, Calypso, and Dumbarton prospects had returned high-grade intercepts.
“We are pursuing both brownfields and greenfields targets in the historical region,” he said.
“High impact diamond drilling over geophysical anomalies at Calypso is currently underway, and BHP previously did some good work there that has led to an exploration target at Calypso of around some 200,000 ounces.
“Whilst Calypso is our most advanced target right now, we also have drilling campaigns being conducted at Dumbarton’s and Dover Castle before the end of financial year which will feed into a maiden resource later this year.”
“We are only just beginning to scratch the surface of our extensive tenement package and have recently bolstered our geological team to assist in systematic evaluation and exploration of target areas.”
Led by George Sakalidis, Magnetic owns the Lady Julie and Homeward Bound projects a few klicks either side of Dacian’s Mount Morgans operations, including its 2.4Moz Westralia underground and 1.3Moz Jupiter pit.
MAU has slowly but surely built up a significant resource base at HN9, Lady Julie Central, Lady Julie North 4, Mount Jumbo East and Homeward Bound South of 13.1Mt at 1.22g/t Au for 511,000oz of gold at a 0.5g/t cut-off.
Most of the drilling is shallow as well, with 49% of its resource within 50m of surface and 87% within the top 100m.
With an additional exploration target of 2.6Mt to 3.6Mt at 0.94g/t to 1.2g/t Au for 109,000oz to 135,000oz Au at a 0.5g/t cut-off, there is plenty more gold to be found.
This stock was formerly known as Transcendence Technologies. It rebadged and relisted as a gold explorer late last year.
Its namesake project covers ~1,088ha around the historical Redcastle Mining Centre, ~60km east of Leonora. Gold was originally discovered at Redcastle in 1897.
The $4.5m market cap stock is flat year-to-date and had $4m in the bank at the end of March.
But it was rewarded only on Wednesday for some tasty results from drilling at Redcastle.
It announced high grade and shallow results like 10m at 29.16g/t from 6m (including 1m at 250g/t from 11m).
Importantly these hits were from a 21-hole ‘step out’ (extensional) drilling program away from old workings and into new areas.
This is a speculative one, but Northern Star has become more ruthless in its treatment of long held assets in recent times, generating over $400 million by selling its Kundana, Coyote and Paulsens mines.
With a big expansion of the Super Pit in Kal on the cards, there are many in the market who think Finlayson could seek another homecoming by making a play on the mine that made him at Saracen.
Around halfway between Leonora and Kalgoorlie, NST produced 185,311oz at all in costs of $1952/oz in the first nine months of FY22 at Carosue Dam.
Some of the heat has come out of the Nexus story since drilling successes at its Crusader-Templar prospect last year sent the long ambling explorer’s share price soaring.
It has since retreated along with the market and after a high profile diamond hole failed to return significant gold mineralisation, but is still working on a maiden resource estimate from shallow RC drilling at the Wallbrook gold project.
Nestled between major mining operations being dug up by Northern Star at Carosue Dam, Nexus is focused on Wallbrook but also owns the small scale Pinnacles project nearby, where it boasts a JORC resource of 609,000t at 4g/t Au for 78,000oz.
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