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Mining
We know that the ultimate goal of explorers is to increase resources through exploration to such a point where a clear pathway towards development and in the end, production is demonstrated.
But mining is a complex, difficult game – even successful discoveries are the product of years and years of hard work.
VP Capital co-founder and portfolio manager John So says the market has become “a little more sceptical” of small to mid-size companies that plan to transition into the next phase of development with no other producing assets up their sleeves.
“Investors want to see quite a few quarters of production to see that they have actually achieved the cost guidance they have put forward and more often than not, that doesn’t happen,” he said.
“One common issue that tends to arise revolves around grade and being able to produce at a grade that is in line with their resource modelling.
“We have seen over the years with various companies that the initial area they were targeting may actually be lower grade than what they expected, which means they are getting less yield and less gold out of each tonne,” So said.
While different companies are faced with different challenges, another common problem points to the mine plan – or rather the lack of a ‘robust’ mine plan.
This means rather than focusing on high reserves, the focus is on high JORC resources.
Typically, “reserves” refer to discoveries that are commercially recoverable using existing technology, while “resources” are either not yet commercially viable or are mere speculation.
To “grow” a “resource” typically means to find new information that shows an existing deposit is bigger than previously thought.
“If a bit more capital is spent on refining the mine plan and proving up the reserves then investors generally have more confidence and the company’s share price can rerate upwards faster,” So explains.
A good example of a company that has “transitioned well”, according to So, is Perseus Mining (ASX:PRU).
“They have two assets that have been operating for quite some time and when they started developing their third asset, the Yaoure Gold Mine in Africa – although it took the market some years to warm to it – there was a lot more confidence that PRU could deliver the mine successfully, which it has done and is in the process of ramping up,” he said.
These are the companies on the verge of reaching hallowed stage of development in the next year or two.
GREENSTONE RESOURCES (ASX:GSR)
Market cap: $26 million
Production date: Jan 11, 2022
Production target: 85,000 at 3g/t for 8,200 ounces of gold as part of the phase 1 JV
Greenstone, previously named Barra Resources, is taking a bit of a shortcut towards gold production with trial mining activities at the Burbank’s Gold Project yielding a maiden gold pour of 840 ounces, worth about $2.1 million.
Despite the support of Peter Bartlett (founder of Barminco) as a major shareholder, this high-grade project has seen very limited exploration attention for the past two decades due to previous management focussing on other assets and small-scale mining activities.
While production is modest, Greenstone Resources managing director and CEO Chris Hansen says it serves to expedite the path to long-term and sustainable commercial production.
“The real catalyst in the short-term remains on exploration and in the long-term will be the commercialisation of that through mining,” he said.
“The vast majority of Burbank’s sits on granted mining licence – we’ve got the greenfields processing plant, only 10km away from our mine site supported by a full network of existing infrastructure.
“What that means is that any future discoveries we do make, we have the ability to commercialise very quickly.”
Current underground mining operation at Burbank’s is part of a joint venture with FMR investments, which is a strategic alliance for Greenstone.
“They are very experienced underground miners and they own the Greenfields Mill outside of Coolgardie which doesn’t impair our balance sheet – FMR take all of the risk in terms of upfront capital costs – we haven’t had to go out and raise additional money to resume mining operations at Burbank’s,” he said.
Previously under Barra Resources Hansen said the company had been focused on a cobalt asset and negleted the gold asset for the past 20 years.
“Historical grades are well over 20g/t and there has been no real exploration mining done below 200m – we see a huge amount of opportunity there,” he said.
DATELINE RESOURCES (ASX:DTR)
Market cap: ~$37 million
Production date: Towards the end of March 2022 quarter
Production target: The planned mining head grade will result in 12-15,000oz per annum, however, investigations are advanced on increasing throughput.
Dateline has been consolidating ground (around 2,000 acres worth) at the Gold Links Project in Gunnison Country, Colorado since 2016.
The project, comprising four permitted mines (Gold Links, Sacramento, Raymond, and Carter) and the permitted Lucky Strike mill, lies within the ‘Gold Brick District’ of the Colorado mineral belt, which has historically produced more than 25 million ounces of gold.
In an interview with Stockhead DTR CEO Stephen Baghdadi said unlike other projects, the gold zones at Gold Links can be regarded as “incremental ounces” in that they don’t require a material investment to commit to mining.
This means a substantial gold inventory and numerous studies to justify financing and a development decision is not required.
“With underground development, a fully permitted mill and other infrastructure in place, all that really needs to be considered is the operating costs of extracting and processing the mineralised sections as they are drilled out,” he said.
“Our plan was to begin the development of about 1km of underground access-ways in 2020 but due to the pandemic the plans had to be suspended until June 2021.
“We used the delay to plan a 4,000-metre underground drill program to get an even better understanding of the gold grade distribution within the vein system.”
The knowledge gained from the drilling program, the establishment of a second escape-way and the fact the company has a fully permitted mill ready to go, has allowed Dateline to accelerate production plans.
Dateline Resources has $4.5m cash in the bank.
CALIDUS RESOURCES (ASX:CAI)
Market cap: $282 million
Production date: June 2022 quarter
Production target: 105,000oz before moving to 130,000oz per annum
After starting construction works at the Warrawoona Gold Project in WA’s Pilbara region in March 2021, Calidus says about 81% of activities have since been completed.
As it stands, the project is forecast to produce up to 105,000oz over an initial eight years but the potential to increase to 139,000oz is there when the nearby Blue Spec deposit is developed.
Blue Spec has a JORC resource of 415,000t at 16.3g/t for 219,000oz and is now the subject of a definitive feasibility study (DFS), also due in the June quarter of this year.
Recent high-grade results at Blue Spec have included 4.1m at 44.6g/t gold from 194.9m, including 2.2m at 60.4g/t gold and 1.1m at 100.7g/t gold from 196m.
CAI chief executive officer David Reeves told Stockhead the company plans to add a second operation further down the track.
“Being a single asset producer is very high risk, if anything goes wrong on that mine you are very exposed so we will certainly be looking to add a second operation as soon as we can,” he said.
BRIGHTSTAR RESOURCES (ASX:BTR)
Market cap: ~$20 million
Production date: Mid to late 2023
Production target: 70-80,000oz per annum minimum
Brightstar is an emerging gold development company in the Laverton region of Western Australia, where its three major projects (Cork Tree Well, Beta, and Alpha) lie within a 60km radius of the plant.
A three-year plan to production has been slated at the ‘Laverton Project’, where a global JORC resource of 7.2Mt at 1.9g/t for 445,000oz (including 239,000oz in the JORC measured and indicated categories).
Speaking to Stockhead, BTR managing director Bill Hubba said the Laverton Project was last in production during the 2000s before it sat idle for nearly a decade.
Recent, shallow, high-grade results at Cork Tree Well (CTW) of up to 12m at 4.25g/t gold from 131m and 1m at 20.3g/t gold from 23m have provided the company with the confidence to refine the interpretation of geology for CTW to feed into an update resource model.
“We believe Cork Tree Well has the mineral endowment to be a significant single-pit source of ore for a potential restart of mining operations,” he said.
“This is the first drilling done in nine years so we see a lot of potential to add discoveries and resource growth.”
ROX RESOURCES (ASX:RXL)
Market cap: ~$70 million
Production date: late 2023
Production target: 120 – 125,000oz per annum
After seven months of drilling (~35,000m) RXL has increased its total resource at the ‘Younami’ project (70% RXL, 30% VMC) by a whopping 1.34Moz to 3Moz.
The bulk of the new gold is from the high grade ‘Deeps’ target, which now has resource of 2.195Moz grading 6.89g/t and reflects a tripling of the June figures.
There are more upgrades to come, the company says, with some drilling from the last few months of 2021 still to be incorporated in the overall resource.
Currently in the ‘study’ phase – with plans to complete a scoping study in May and then a feasibility study after that – Passmore says the company is focused on carrying out more drilling, publishing reserves and backing up its detailed mining plan before building the project and heading into production next year.
RESOURCES AND ENERGY GROUP (ASX:REZ)
Market cap: ~$27 million
Production date: July 2021
Production target: 110 – 130,000oz at 2.3g/t to produce 8,800oz of gold
A Sydney-based gold and green metals explorer, developer and now producer, REZ kicked off production at its Granny Venn Mine back in July 2021.
Granny Venn forms part of the company’s flagship East Menzies Gold Project, 130km north of Kalgoorlie which comprises three mining leases, one exploration licence and 38 prospective leases over an area of 82km.
The original Granny Venn open pit, which was developed by Sydney companies Money Mining and Paddington Gold in 1997-1998, was based on a pit design optimised at a gold price of $454/oz. The gold price is now 5x that.
And making it even more lucrative for REZ is the fact that under the profit-sharing deal brokered with BM Mining, REZ didn’t have to shell out a dime to get Granny Venn back in operation, with BM Mining covering the $3m capital outlay required.
So far, REZ has completed two mining campaigns at Granny Venn and is currently working to lock in a date for a third campaign to generate cash flow and fund further exploration at East Menzies.
REZ executive director Daniel Moore said the company plans to use the gold production and cash to unlock nickel fields in the southern blocks of East Menzies, which haven’t been looked at since 1986.
The ‘southern blocks’, otherwise known as the Springfield and Cepline prospects, uncovered a bunch of high value battery metals towards the end of last year including a peak assay of 1m at 1.78% nickel from 98m.
Re-assaying also showed significant intervals of mineralisation that included nickel, cobalt, chromium, molybdenum, zinc, platinum and palladium.
In early January, further investigation of recent drill results from the Springfield prospect confirmed REZ had indeed uncovered the nickel sulphide holy grail at the project that, up until just recently, had only been looked at for its vast gold potential.
KAISER REEF (ASX:KAU)
Market Cap: $25 million
Production date: January 2021
Production target: Operating the mine without JORC reserves
The A1 Mine, one of Australia’s longest running gold mines, is located in Victoria’s Maldon Goldfield where more than two million ounces of gold has been produced since the dawn of mining in the region.
Kaiser Reef bought the project in January 2021 and has been focusing on ramping up production ever since.
During the December quarter, Kaiser attained a 36% increase in gold production over the previous quarter where a gold head grade of 9.87g/t gold was recovered.
The company has spent the last year drilling out the Queens Lode underneath the A1 Mine, which is expected to deliver “substantial increase in production and revenues”.
Mine planning for the next quarter is primarily preparing the operations to start a planned major increase targeted for April 2022.
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