Kristie Batten: The Magnetic pull of this emerging ASX gold developer

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.

Magnetic Resources (ASX:MAU) is facing an interesting few months of the year as it firms up plans to build a gold mine in Western Australia and fields M&A interest.

Last month, Magnetic released metallurgical test work from Lady Julie North 4, which returned average gold recoveries of 91.3%.

Magnetic managing director George Sakalidis confirmed the work was one of the final components of the current feasibility study for the Lady Julie project outside Laverton.

The company followed with new drilling results from LJN4 in mid-December.

The standout hit was 76m at 2.4g/t gold from 435m, which mining database Opaxe named the best drill result in Australia that week.

The latest round of deeper drilling below the northern end of the planned open pit has confirmed the project’s underground potential, and MAU believes further infill drilling will increase the resource.

Lady Julie has a current resource of 32.6 million tonnes at 1.79 grams per tonne gold for 1.88 million ounces, including 23.1Mt at 2.01g/t for 1.49Moz at LJN4, though the more recent deeper hits are outside that envelope.

According to Magnetic, the resource makes Lady Julie one of the largest and highest-grade open pit gold opportunities in Australia.

A resource update is due this month with the company aiming for an increase in size and grade.

Underground being studied

Based on recent results, Magnetic has expanded the feasibility study to include a potential underground mine.

That study is likely to be released before the end of this quarter.

Magnetic released a prefeasibility study for the Lady Julie open pit in March 2024 and updated the economics in August.

The update confirmed an eight-year operation to produce 104,000oz per annum at all-in sustaining costs of $1386 an ounce.

Based on a gold price of $3200/oz, the project would generate total EBITDA of $1.49 billion.

The pre-tax internal rate of return was 135%, while the pre-tax net present value (8% discount rate) was forecast at $925 million.

Capital costs for the operation, including a 2.2Mtpa plant, were forecast at $111.3 million, which would be paid back within a year.

However, the Australian dollar gold price has surged to a record of more than $4300/oz, which bodes well for the economics.

Argonaut analyst Patrick Streater believes the recent deep drilling added 24,000oz to the underground mining inventory.

He is modelling an eight-year operation to produce 132,000ozpa.

“Years 2-8 of our mine plan averages 149,000ozpa which includes underground production at LJN4 drawing from Argonaut’s underground mining inventory estimates,” Streater said.

“Our pre-production capex total of $300 million includes a new 3Mtpa mill and associated infrastructure, underground development portal and decline costs and working capital.”

Argonaut has a price target for Magnetic of $3.10, significantly higher than Friday’s closing price of $1.095 and named the company as one of its preferred picks among the 14 gold developers and explorers under its coverage.

M&A appeal

Lady Julie sits in the Leonora-Laverton gold district, which has been the subject of major merger activity.

In 2022, Raleigh Finlayson’s Genesis Minerals (ASX:GMD) launched a bid for Dacian Gold, which was followed by a drawn-out battle between Genesis and Silver Lake Resources for the large Gwalia mine in Leonora.

After several revisions, Genesis won that fight and now operates Gwalia and recently restarted Dacian’s Mt Morgans plant at Laverton.

Last year, Silver Lake merged with Leonora producer Red 5 to create Vault Minerals (ASX:VAU).

Genesis and Vault have been the subject of merger speculation ever since.

Lady Julie is just 10km from Mt Morgans and 15km from Gold Fields’ Granny Smith mine.

Both plants are short on feed and, in a podcast just before Christmas, Sakalidis confirmed the company had opened a data room to Genesis and Gold Fields.

“We’re not afraid of M&A but at the same time, we’re moving this into feasibility and also talking to banks as if we’re going into production so there’s a two-pronged approach here,” he said.

Sakalidis said the project was large enough to justify a standalone project if corporate activity didn’t eventuate.

“The M&A process is something we can’t predict,” Sakalidis said.

“We think most likely it will happen, but we don’t know for sure.”

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