Pic: Bellevue
Mining
A platter of crawfish to make Homer Simpson drool served 700km from the ocean in the sweaty and harsh WA outback.
Angus beef, rack of lamb and chocolate mudcake with shards of honeycomb for gold nuggets.
At the opening of WA’s newest gold mine, Bellevue Gold’s (ASX:BGL) spread is comfortably covered by the $1.2 million in cash it prints with each gold bar the ASX 200 bullion producer mints, the Tudor feast a reminder that for WA’s gold miners times are indeed good.
Yesterday’s grand opening arrived with a touch of the good fortune that has blessed Bellevue since it found the fabled Tribune Lode at the Leinster gold mine in 2017 in a part of the mine thought barren by operators who abandoned the project 20 years earlier.
After building through an inflationary environment infected by the Covid-19 pandemic, the curtain was raised as gold prices touched all time highs.
Against a background of war and stagnating interest rates, they rose to US$2180/oz on Monday before a strong US inflation print saw prices moderate by 0.9% to US$2161/oz Tuesday, still almost US$100/oz higher than they ever have been before this month.
In Aussie dollar terms that’s close to $3300/oz.
The real tinder for gold prices – rate cuts expected later this year – have not even hit.
Commbank expects to see the US fund rate fall 150bps by the end of 2024, with prices lifting to US$2200-2300/oz.
If that eventuates, Bellevue’s next seafood smorgasbord could feature a pile of beluga caviar.
Bellevue is on track to hit guidance for the second half of FY24 of 75,000-85,000oz, and while it hasn’t revealed its production costs yet, is expected to hit commercial production sometime in the June quarter.
Monthly production in February came in at over 13,000oz and at grades of 5.2g/t.
RBC’s Alex Barkley said in a note this week the gold miner should be free cash flow positive through the second half, boosting its bank balance from $44m at December 31 to $96m at June 30 and avoiding the need to raise additional capital after collecting ~$500 million in debt and equity over the past eight years.
As stopes pulled by contract miner Develop Global (ASX:DVP) replace ore from low grade stockpiles, Barkley thinks grades will inch towards reserve levels of 6.1g/t, projecting a 5.9g/t feed grade across FY25.
While gold prices are flying and could move higher, a belief in the sector that in part explains a wave of consolidation, Bellevue MD Darren Stralow says his thoughts haven’t shifted to M&A yet.
With a runway of 10 years at 200,000ozpa, his priority is seeing the ramp up go off without a hitch.
Next is the task of replicating the exploration success BGL saw in its early days. Having pummelled the earth with drill rigs to illuminate lodes previously thought displaced by a fault, it delineated over 3Moz in resources.
1.34Moz of that has made it into an underground reserve cut at a now conservative looking gold price of AUD$1750/oz. Company execs see the potential to find millions of ounces beyond that through a return to growth focused exploration.
“The thing that’s the most attractive to us and the thing that a lot of people forget about Bellevue and the ground here is that all of the exploration here was done from surface, a lot of surface drilling before pulling the trigger on going underground,” Stralow said.
“And there has not been a lot of exploration actually done from underground at Bellevue. We have been really focused on grade control drilling. So we’ve done 180,000m of grade control drilling in the last 18 months.
“That’s a $20 million investment in that near term drilling to de-risk the mine plan, the next part once we hit that steady state is to really focus on the exploration from the underground platform.
“This is an orebody that is continuous. We’ve got all these exciting, multi-million ounce exploration targets just standing on the ground that we’re on, and that’s going to be the best bang for buck for our shareholders.
“Go and chase those exploration targets, use them to justify production growth at the site.”
Bellevue plans to produce what it has termed green gold, with a small underground footprint, high grade and 80%-plus renewable electricity penetration underpinning a push to be ‘Net Zero’ by 2026.
That would be four years ahead of green energy obsessed Andrew Forrest’s Fortescue (ASX:FMG), spending US$6.2b to hit ‘real zero’ at its Pilbara iron ore mines by 2030, and 24 years ahead of BHP (ASX:BHP), Rio Tinto (ASX:RIO) and gold peers like Stralow and Develop boss Bill Beament’s former employer Northern Star Resources (ASX:NST).
It’s far from a perfect comparison. Bellevue’s operations are smaller and less complex than those behemoths.
Yet it hopes that ambition will achieve the aim of marketing a ‘green premium’ gold product in partnership with ABC Refinery.
Whether buyers are willing to stump up the extras remains to be seen. But it could solve another conundrum.
Despite stable and historically high prices gold miners have struggled for airtime as companies producing metals for EVs have turned investor heads. In short, gold’s lost favour because folks think it’s mined just for mining’s sake.
Paraphrasing here, but emissions from lithium mining, on the other hand, are worth it to ‘save the world’.
Stralow is bullish on gold’s future as a safe haven and physical store of wealth, and thinks Bellevue’s zero carbon ambitions can win it access to sustainability indexes and ETFs popular with younger, ESG forward investors.
“I don’t think (investor sentiment) has to do with the green traits of gold,” he said. “I think that in recent times, if anything, gold has shown its place in society as a store of wealth, as a hedge against against currencies and a way for people to actually have something physical.
“We’re going to differentiate ourselves as the only company that is producing net-zero material by 2026, so we feel that will attract the incremental investor dollar that is focused on green thematics.
“If they want to invest in a gold company, then we’ve got one for them.”
Argonaut analyst Hayden Bairstow thinks ASX gold stocks are still being priced as if the spot price was $100-150/oz lower than it is today.
“In terms of the entire sector lifting it’s starting to happen, but these stocks are still trading below their spot valuations in my view,” he said.
It’s not all sunshine and rainbows for Aussie gold miners. Gold Road (ASX:GOR), for instance, has underperformed after revising guidance last year. Others, which met their targets or improved their growth outlook, have already seen buying sentiment shift in their favour.
But expect some earnings upgrades for producers, many of whom have cleared onerous out of the money hedges in the past year.
“There’ll still be some volatility in gold. We saw it come off a little bit with inflation data surprising a bit the wrong way,” Bairstow said.
“But for sure the gold price average for this quarter, for example, is still a lot higher than where consensus is. So you’ll see earnings upgrades come through the market.
“I think expectations of what these gold companies will deliver in terms of cash flow generation through to the end of the March quarter will be better.
“And if things hold up where they are all the way through to June we’ll see better earnings and cash flow results for all the producers in WA.”
‘Stronger for longer’ gold prices could help explorers and companies sitting on previously sub-economic gold deposits turn the taps on and capture previously hidden value as well.
But Bairstow says exploration stocks which can bridge the value gap to the gold price and larger producers are those who have demonstrated exploration success, citing Spartan Resources (ASX:SPR) and Magnetic Resources (ASX:MAU) as two recent examples.
Gold has been a saving grace for the WA Government, whose next budget will be hit from two fronts.
Iron ore prices, which rose to over US$140/t by the end of last year and drove massive profits for companies like Fortescue, have collapsed to ~US$105/t thanks to the ongoing China-wobbles.
That won’t hurt forward projections so much given WA’s famously conservative treasury — terrified of repeating the mistakes of the Elizabeth Quay era — perpetually tips iron ore to tumble to US$66/t year upon year. But it will mean a smaller “surprise” surplus for Premier Roger Cook to parade.
But lithium and nickel royalties, forecast to rise from $910m to $928m and $154m to $174m respectively will likely undershoot after prices collapsed to cyclical lows, prompting mine closures and production curbs.
“Obviously, mineral prices are cyclical. It’s something that our state’s resource industry has had to contend with for well over 100 years. It is very encouraging the gold price is over US$2100 I think at the moment,” new WA Mines Minister David Michael said after opening the operation yesterday.
“I also take some encouragement that the nickel price as of this morning at least has ticked over US$18,000/t and has been going up for a little while. These price changes are cyclical.
“We need just to make sure that we have cutting edge operations like we have here at Bellevue looking at new technologies, looking at new ways of doing things to make sure that we’re able to weather those price cycles that Western Australia’s weathered in the past.”
Viewed as spent, Bellevue went unloved for years before its bargain basement acquisition in 2016 to the extent its old pits were used to dump ‘dirty nickel water’ from the adjacent Cosmos nickel mine.
That mine’s revival was halted earlier this year, as its new owner IGO (ASX:IGO) placed the operation in mothballs without producing a tonne as costs surged and nickel prices crashed on a structural shift to oversupply from low cost Indonesian producers.
Now flying hundreds of workers through IGO’s Cosmos airstrip, if Bellevue lives up to its billing it will be hard to escape the irony it could be Leinster’s real money-spinner.
The reporter travelled as a guest of Bellevue Gold.
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