The chasm that separates gold plays with production and those without can be a very wide one – particularly when market conditions are tough – and Kaiser Reef is firmly in the first school.
The company recently reported free cash flow in the March 2023 quarter, passing a key hurdle that has caused more than one junior gold producer to stumble and is now poised to about double mine production at its A1 mine in Victoria.
As a bit of a hint of the impact of doubling mine production, the company sold 3,376oz of gold at an average price of $2,807/oz in the March quarter for $9.48m in revenues versus total costs of $8.09m.
“We are effectively doubling our production and it is certainly my strong belief that we’re not going to be doubling our mining costs, so our profit margin per ounce will increase,” managing director Jonathan Downes told Stockhead.
But getting to this stage was possible only due to the company enjoying a number of good quarters and doing a fair bit of reinvestment into the Maldon processing plant.
Some examples of just what Kaiser Reef (ASX:KAU) did to ensure that it is in its current strong position include upgrading the SAG milling circuit with a new SAG discharge hopper and pump, installation of new PLCs to replace obsolete controllers, and redesigning the SAG mill lining for greater wear life and efficiency.
New SAG mill liner at the Maldon processing plant. Pic: Supplied (KAU)
This has reduced the startup/shutdown times and delivered a 20% increase in throughput per shift, a reduction in grind size from 125 micron to 75 micron that has delivered significant increases in grinding and classification efficiencies, a reduction in power and reagent costs, and significant safety improvements.
“There’s been a significant amount of investment and we believe now we can start reaping the benefits of that,” Downes added.
“There’s a myriad of things that we could put the money to. We would like to build up a war chest and increase the company’s cash at bank.”
Leveraging gold production infrastructure
While the company is currently mining at A1 and trucking ore to the Maldon plant for processing, it has also recently defined a resource of 1.2Mt grading 4.4g/t gold at the Maldon gold field, which has historical production of 2.1Moz at 28g/t.
This gold mineralisation remains open at depth with deeper drilling confirming that high-grade gold is present at depth.
“It is literally open-ended, it is just a matter of stepping out and improving and expanding the resource base,” Downes noted.
“You’ve got a high probability of success and more importantly, as soon as we find something, it’s fully permitted and most of the infrastructure is already there and established, and it’s only a couple of kilometres from the processing plant, so we could have production from discovery quickly.”
The additional potential is indicated by the Exploration Target of between 1.75Mt and 2.7Mt grading 3g/t to 4g/t gold which Downes is itching to drill out and define a bigger resource that can be taken into production as a second mining centre for the company.
“Our processing plant is operating well under capacity and could easily treat a lot more material,” he explained.
There is also room for A1 to grow given that it is also open-ended at depth, and it has a very high-grade ore.
“It (Victoria) was the largest producing gold for a very long time and there’s a lot of exploration going on with a lot of great discoveries and a lot of potential,” Downes noted.
“But Kaiser’s real advantage is that we have invested hard into making our mill more stable and increasing its capacity.
“It’s nearly 25% higher throughput rate than it was before and we believe that we’re going to be very useful for all the regional explorers as a processing solution.
“Permitting is difficult in Australia these days and having an established gold processing plant is quite a valuable asset.”
Downes noted that it takes several years to permit a new plant and over two years to actually build it, during which time the management would typically have to give away half the company in capital raisings and then debt for a typical explorer to progress into production.
The golden road ahead
With one producing mine serving as its initial cash engine and the prospect of soon adding another, Downes is hopeful that Kaiser can avoid going to the market for capital in a challenging economic environment.
“In the next 12 months we will be enacting our increased production rate, building our cash balance and while we have not resolved what we will do with the cash, I would like to see part of it targeting drilling at Maldon and bringing that into a second operating mining centre within the company,” he added.
“We will also keep the diamond drill rig going at A1 where we have routinely put out some of Australia’s best drilling results such as the recent intercept of 4.4m at 118g/t gold. That’s an over 500 gram metre intercept, which is just exceptional.
“We think that the A1 Mine has a lot of upside to give, so it will be working on delivering from both fronts.”
Downes also expressed his belief that just the Maldon processing plant alone is worth “well north” of Kaiser’s current sub $30m market capitalisation.
“On top of that we have a historical gold field that has been untouched, an operating gold mine, and our own mining fleet.”
Further enhancing the company’s value is the company’s managers, engineering team and work crew.
“I think we’ve got a really talented team. It’s very cohesive and being a smaller operation, we really have a handpicked and exceptional crew and the board is well qualified too,” Downes concluded.
This article was developed in collaboration with Kaiser Reef, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.