Ten Bagger: Falcon Metals bringing Victorian gold rush back to life

Welcome to Ten-Bagger, where Lowell Resources Fund chief investment officer John Forwood gives us his take on a sector of the ASX resources market full of value.

This month, he looks at the latest Victorian gold explorer to catch the eye.

It’s a sort of Loch Ness Monster for the Australian gold industry – the next Fosterville.

The hunt for a repeat of the legendary Swan Zone, a deposit at Fosterville, northeast of Bendigo in Victoria, that once ran at 1.5 ounces to the tonne, producing gold at an operating cost of around US$150/oz.

For context, that’s around 10 times what would be considered high grade in a standard WA gold mine.

And it was operating at a time when gold was fetching less than US$2000/oz.

With gold now closing on US$3700/oz, the search for the mythological repeat of Fosterville’s Swan Zone discovery is a dream big enough to keep the most despondent Victorian gold hunter going.

The romance remains for fundies in Melbourne, a city originally built on the riches of a gold rush which has seen local opportunities dwindle in recent decades.

“There has been a bit of a migration of Perth entrepreneurs over to Victoria,” Lowell Resources Fund (ASX:LRT) CIO John Forwood says.

“It’s the potential to maybe find another Fosterville. There’s certainly a huge amount of gold in Victoria still unmined and finding a bonanza grade zone, like the Swan Zone at Fosterville, is definitely possible.

“It’s going to take some very smart geology and a lot of drilling.”

Flag bearers

The flag bearers for Victorian gold exploration in recent time have been Southern Cross Gold (ASX:SX2).

It’s pre-resource. But enthusiasm, especially in the North American market, has sent the company’s market cap to $1.6bn on the promise of its Sunday Creek gold and antimony discovery in the largely overlooked Melbourne Zone of the Victorian Goldfields.

More recently, Falcon Metals (ASX:FAL), a spinoff of Chalice Mining (ASX:CHN) and part of the investment stable of WA mining rich-lister Tim Goyder, has become the latest Victorian market darling.

Its shares have run ~640% higher YTD, most of that in the past month or so after drilling hit a 1.2m zone at 543g/t Au from 544.2m deep at Blue Moon, a prospect sitting directly to the north of the 22Moz Bendigo Goldfield.

With other results from the wedge hole and the original diamond intercept also returning speccy visible gold and high grade intercepts, the Mark Bennett-chaired explorer was able to head to the market for $20m in fresh capital to ramp up drilling.

Forwood visited the site last week and is seeing similarities to Southern Cross when it comes to exploration nous and community relations, two key aspects of operating in the both physically and metaphorically nuggety Victorian jurisdiction.

“Certainly the Falcon hit … very, very smart geology to hit that zone and very, very good directional drilling to be able to hit that zone and then step off and hit it again with navi drilling,” Forwood said.

“Very smart work and I think the other thing is very smart or very good community and government relations.

“Southern Cross are exceptional at that. Community relations, government relations and traditional owner relations – you’ve got to be good at those three things in Victoria to get drill access.”

Falcon is drilling on crown land in ‘historically degraded areas’ turned over in the gold rush, according to Forwood. And with the nearest residence 600m away, the company has leveraged technology to mitigate its impact on the local community, drilling from inside an noise-cancelling shed.

The Victorian Era

It’s not all plain sailing.

Now owned by one of the world’s biggest gold miners, Agnico Eagle, Fosterville’s grade has dropped off significantly as mining has moved from the Swan Zone to lower grade areas.

And just last week, Kaiser Reef (ASX:KAU) announced it would close the near 165-year old A1 gold mine after its Nova Zone underperformed.

The company has front run the closure by acquiring the Henty mine in Tasmania from Catalyst Metals (ASX:CYL) and will switch its Victorian focus to exploration in the Maldon field.

It’s a reminder of the potential for Victoria’s complex geology to wrong foot miners and explorers, though Forwood noted there were differences between the rocks in Victoria’s east to those in the north and west that house the major fields at Bendigo, Ballarat and Fosterville.

“Victoria is notorious for being nuggety gold, and that’s known being difficult to drill out to a reserve status,” he said.

“Fifteen odd years ago, Bendigo Mining did a huge amount of work under the town of Bendigo, set up a process plant there, put in kilometres of decline, identified a number of new zones but just couldn’t get the grade continuity.”

New explorers, however, have the opportunity to learn from the lessons of their forebears, Forwood said.

Gold rush

Falcon may be the talk of the town, but there are plenty of other ASX names stepping into the new Victorian gold rush.

Alkane Resources (ASX:ALK) took control of Australia’s only operating antimony mine and one of its highest grade gold mines after merging with TSX-listed Mandalay Resources, the owner of Victoria’s Costerfield mine. That deal should unleash additional capital to extend the mine’s life.

Junior explorers have taken a shine to the state as well with gold prices hitting new highs. Stavely Minerals (ASX:SVY) has shifted from copper to gold exploration at its project of the same name, where it already has a copper resource at the Cayley Lode.

S2 Resources (ASX:S2R), another Bennett company, has the ground immediately adjacent to the Fosterville gold mine after winning a bidding process run by the Victorian State Government in 2022. Nagambie Resources (ASX:NAG), which once held Sunday Creek, owns a gold-antimony resource and plant at the Nagambie mine, 37km east of Costerfield.

Brendan Borg’s Bubalus Resources (ASX:BUS) has put together a large package of gold exploration ground near Fosterville and Costerfield via an option at the Crosbie project, as well as Murrindindi near Sunday Creek and Avon Plains, which sits to the west near the privately-owned Stawell gold mine.

As the cycle turns and IPOs re-emerge, Black Horse Mining has popped up as the latest Victorian gold hopeful, Forwood noted.

It’s planning to raise $8m in an IPO backed by NSX-listed hydrogen proponent Province Resources, which will vend its Mt Egerton project into the float.

Mt Egerton is reputed to be one of just eight historic gold fields in Victoria to produce over 1Moz.

An hour from Melbourne and 30 minutes east of Ballarat, Mt Egerton’s various mines produced 1.29Moz at between 5.5-19.3g/t from 1853 to 1906, but has been dormant since, with less than 10% of its holes extending beyond 150m deep.

At Stockhead, we tell it like it is. While Bubalus Resources is a Stockhead advertiser, it did not sponsor this article.