The top five WA gold stocks likely to be on the radar of the majors
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Few sectors of the global economy are flourishing in these uncertain times like Australian gold mining.
A combination of factors including gold’s status as a safe haven investment, global monetary policy in response to the coronavirus threat and exchange rate movements have this week driven the Australian dollar gold price to a record of almost $2750 an ounce.
At this level, all but the most marginal of Australian gold miners are making very healthy profits.
And it is difficult to see that situation changing any time soon unless the restrictions imposed by the government to stem the spread of coronavirus extend to seriously interrupting production.
So where are the bumper profits that are expected from the gold miners likely to go?
Some will undoubtedly be returned to shareholders in the form of dividends, which have become a greater focus for the sector in recent years.
It is also safe to assume that a significant portion will be reserved for acquisition opportunities as companies seek to grow their production profiles, replace reserves that are mined and take maximum advantage of a bumper gold price.
Stockhead has run the ruler over five Western Australian gold stocks with significant resources and development prospects that we think are most likely to find themselves in the crosshairs of bigger suitors as consolidation in the sector continues to be a stand-out theme.
Stay tuned also for a video roundtable with veteran investment analyst Peter Strachan and the leaders of several of these companies on Stockhead next week.
Only those that have been living under a rock for the past few months (we understand if it’s to avoid coronavirus) would not know that De Grey Mining is onto something big at its Mallina gold project in the Pilbara.
The first signs of a discovery at the Hemi prospect at Mallina emerged in December last year, but it wasn’t until early February, when thick, high-grade gold intercepts were returned from two zones, now known as Brolga and Aquila, 640m apart, that its potential size truly became apparent.
In early March, after another round of mouthwatering drilling results had dropped (including 93m at 3.3 grams per tonne (g/t) gold from 39m from the Brolga Zone), Argonaut analyst Matthew Keane estimated that the combined Brolga and Aquila zones could already contain 1.7 million ounces of gold at a grade of 2g/t plus.
Giving some sense of how fast the discovery is evolving, Keane upgraded his estimate to 2.8 million ounces in a note to clients yesterday.
Add those 2.8 million ounces to the 1.7 million ounces at 1.8g/t in resources that De Grey has defined in the greater Mallina project area and there is easily the critical mass to support a significant gold operation.
The company has indicated it could be in a position to announce a maiden resource for Hemi within six months and given that the mineralisation remains open in most directions, there is a good chance it will surpass Keane’s latest estimate.
There is also thought to be strong potential for more Hemi-style discoveries in the greater project area.
De Grey recently appointed mining engineer and former LionOre chief operating officer Glenn Jardine as its managing director, starting in early May.
This could be interpreted as gearing up for a rapid move into development, but it is unlikely the company will take any serious steps down that path until it has a better handle on the size of Hemi.
The question that begs to be asked then is will De Grey still be the owner of the project when first gold is poured?
Hemi’s rapid emergence as a shallow, high-grade gold discovery and the probability that Mallina’s global resource will exceed 4 million ounces is sure to have put De Grey on the radar of the big Australian gold miners, not to mention some of the international heavy hitters.
Providing some level of protection against any opportunistic, low-ball takeover offers that might be lobbed, fellow listed explorer DGO Gold (ASX:DGO) holds a significant blocking stake of more than 16 per cent.
Alongside Spectrum Metals (ASX:SPX), which is in the process of being taken over by Ramelius Resources (ASX:RMS), Bellevue Gold was the darling of the Australian gold exploration scene over 2018 and into the first half of 2019.
A bit of the heat has come out of the story recently, as has been the case with other gold stocks at the pre-development stage.
However, the company demonstrated the esteem in which it is still held by investors this week, raising $26.5m at only a 7.7 per cent discount to its last traded price in what can only be described as a terrible market.
The feat was made all the more impressive by the fact that the stock gained 27 per cent upon resuming trading on Wednesday.
Bellevue’s rise to prominence has been as a result of exploration success at the historic Bellevue gold mine near the goldfields town of Leinster, where it has made several high-grade discoveries beneath the old pit and in the surrounding area.
The project’s inferred resource stands at 6.1 million tonnes at a phenomenal grade of 11.3g/t gold for 2.2 million contained ounces.
Having undertaken significant infill drilling to improve confidence levels, the company expects to release a maiden indicated resource in the June quarter.
Bellevue confirmed in April last year it had appointed Cannacord Genuity as a financial adviser to deal with any approaches from third parties interested in the company or the project.
Nothing has eventuated on that front yet and it is not clear if that particular mandate is still current.
But there is a swathe of companies with operations close to Bellevue including Northern Star Resources (ASX:NST), St Barbara (ASX:SBM), Saracen Mineral Holdings (ASX:SAR) and Gold Fields that would be keeping a close eye on things.
Bellevue could also appeal to a company like Gold Road Resources (ASX:GOR) if it were to seek to diversify its asset base beyond its half share in the Gruyere gold mine and significant tenement holding in the remote Yamarna belt.
Not quite possessing the profile of a Bellevue or De Grey, Apollo Consolidated has nonetheless made great strides with its Lake Rebecca project, 150km east-north-east of Kalgoorlie, over the past couple of years.
The breakthrough moment came in mid-2017 when assays from the first diamond holes Apollo drilled into the Rebecca deposit returned 17.84m at 15.95g/t gold from 142m, 49m at 4.75g/t gold from 166m and 28m at 2.41g/t from 179.5m
The company has since reduced its interests in Cote d’Ivoire to focus its energies on Lake Rebecca and in February released a maiden open pit resource for the project – which includes Rebecca and the satellite Duke and Duchess deposits – of 1.035 million ounces at 1.2g/t gold.
Further success here could see an underground development added to the open pit scenario, which would bolster the project signficantly.
Apollo is in an enviable position of not needing to worry about raising capital in this turbulent market – or any time soon for that matter.
The company presciently topped up its coffers through a $10m share placement in February, with the new funds adding to the $7.5m it had in the bank at the end of December.
With regards to which miner might be considered a logical owner of Lake Rebecca, the proximity of Saracen’s Carosue Dam mine some 50km to the north-west is worth noting.
Saracen is expanding processing capacity at Carosue Dam to 3.2 million tonnes per annum and could view Lake Rebecca as a complementary source of feed for the bigger mill, but that’s not to say a host of others wouldn’t be interested.
Apollo Hill had been a foundation asset for Peel when it floated in 2007 but exploration success in NSW’s Cobar Basin meant the company’s priorities soon shifted to that side of the country.
While only a short time has elapsed since Saturn’s listing, it’s not hard to think that putting Apollo Hill into its own vehicle has already produced something close to the desired outcome.
Under the guidance of experienced geologist Ian Bamborough, who has been managing director since day dot, the company has established Apollo Hill as a genuine candidate for development that retains plenty of exploration upside.
Through systematic and cost-effective exploration, Saturn has added 276,000 quality ounces to the Apollo Hill resource, taking it to 781,000 ounces at 1g/t gold. Importantly, 298,000 ounces, or 38 per cent of the total resource, now sit in the higher confidence indicated category.
The company expects to deliver another resource upgrade later in the year that will take into account recent high-grade hits from the so-called hanging-wall zone including 12m at 9.98g/t gold from 269m and 8m at 12.9g/t gold from 126m and any other results from additional drilling planned for the hanging-wall zone in coming months.
Saturn demonstrated the regional potential within its 1000sqkm land package along the famed Keith-Kilkenny Shear earlier this month when it announced a hit of 9m at 8.67g/t gold from 116m from the Calypso prospect 3.5km north-east of Apollo Hill.
The region that hosts Apollo Hill is rich in infrastructure and hosts operating or soon-to-be-operating mines including those owned by St Barbara (Gwalia), Dacian Gold (ASX:DCN) (Mt Morgans), Saracen (Porphyry and Deep South) and Gold Fields (Wallaby).
Competitive tension is not lacking on the Musgrave Minerals share register, which is a big reason for the company featuring on this list.
Musgrave, which has been exploring its Cue gold project in WA’s Murchison region since 2015, counts Westgold Resources (ASX:WGX) as its biggest shareholder with 16 per cent of the company.
One of several prominent gold miners in the Murchison with a hungry mill (Tuckabianna) just a stone’s throw from the Cue tenements, Westgold is in the box seat in terms of potential suitors for Musgrave.
But the picture was complicated somewhat by $7bn gold giant Evolution Mining’s (ASX:EVN) arrival on the scene in September last year.
At that time, Musgrave and Evolution signed an earn-in agreement under which Evolution can earn up to 75 per cent of Musgrave’s Lake Austin project area at Cue by spending $18m on exploration over five years.
As an accompaniment to the deal, Musgrave placed $1.5m worth of shares with Evolution, giving it a 4.6 per cent stake.
While the Evolution earn-in area takes in a large proportion of underexplored shear zones beneath salt lake sediments at Cue, it does not include established resources at the Break of Day, Lena, Leviticus and Numbers deposits and approximately 11km of the prospective shear zone, which remains 100 per cent owned by Musgrave.
Following a significant resource upgrade at Lena in February, the global resource at Cue now stands at 6.45 million tonnes at 3g/t gold for 613,000 ounces.
But it is set to increase further in the September quarter when Musgrave expects to deliver another resource upgrade, taking in recent high-grade results from drilling at Break of Day, 130m east of Lena.
The Break of Day resource currently stands at 868,000 tonnes at 7.2g/t gold for 199,000 ounces split between two lodes, Twilight and Velvet.
The recent drilling has confirmed the presence of a “link-lode” between Twilight and Velvet that Musgrave has named Starlight and believes has the potential to transform the project.
“This discovery verifies a new target model for future drilling to test for additional discoveries in the region,” Musgrave managing director Rob Waugh said in a recent announcement.
“We have yet to define the limits of this new link-lode and there are opportunities to find others in the Break of Day-Lena area.”
Who knows what the catalyst might be for Westgold, Evolution or an outsider to launch an offer for Musgrave, but the likelihood that it will happen at some stage in the future appears high.