We all know that old adage “bigger is better”, but it appears investors are starting to come around to the smaller, high-grade developments, especially when it comes to gold.

Of course, the high gold price probably has something to do with that.

“In terms of life-of-mine, obviously bigger is better (all things being equal),” Gavin Wendt, senior resources analyst and founding director of MineLife, told Stockhead.

“When assessing an emerging gold production company, investors typically prefer a mine life of around 10 years, although with smaller producers sometimes investors will be comfortable with five years.

“These are guidelines only and often the situation is heavily determined by gold grades, with many shorter life but high-grade gold developments finding favour with investors.”

The gold price may have stagnated a bit in recent weeks, but it is still relatively high in US dollar terms and even better in Aussie dollar terms given the weaker exchange rate.

Gold is currently fetching just under $2,270/oz in Aussie dollar terms. And with many Australian gold operations having all-in sustaining costs (AISC) of around $1100/oz or less, that makes for a very nice profit margin and potential dividend payout for shareholders.

A popular approach to the development of gold mines these days is to bring production on in stages. This allows mines to begin production on a shorter mine life and start generating cash flow to fund expansion of the mine at a later stage.

Bellevue Gold (ASX:BGL) has adopted this approach and in February released a stage one feasibility study that the company says will rank its Bellevue gold project among Australia’s top 25 gold mines based on its annual production.

The top line figures show the mine will have an initial life of 7.4 years based on average life-of-mine annual production of 151,000oz at an AISC of $1079/oz, which would result in an earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 63 per cent at an assumed gold price of $2300/oz.

Bellevue, which is aiming for first production in the December quarter of next year, says this would make it one of the “most profitable gold companies in Australia”.

Unfortunately for Bellevue though, after it released the stage one feasibility study results, investors started selling out.

“I think the main reason was a life of mine (LOM) projection of just 7.4 years,” Simon Popple of UK-based Brookville Capital told Stockhead in March.

“This sits well below the average length of operation of their peer group of 26 years. The question that many investors may have is – can they extend this?”

Popple is confident Bellevue has plenty of opportunity to extend the mine life and while some investors started dumping stock on the back of the feasibility study results, the company’s share price is still almost double what it was a year ago – a good indicator that the majority of investors are comfortable with their investment.

The Bellevue project is one of the highest-grade new gold discoveries globally with a resource of 2.4 million oz at 10 grams per tonne (g/t), including a maiden reserve of 690,000oz at 8g/t gold.

Meanwhile, Australia’s newest gold producer Ora Banda Mining (ASX:OBM), the rebadged Eastern Goldfields, appears to have garnered investor interest even though its Davyhurst mine only has a 5.2 year mine life.

In the past year, the company’s shares have shot up 150 per cent to around 25c.

First gold was poured at Davyhurst in early February and the operation is expected to produce around 81,000oz each year, generating free annual cash flow of $68.8m at a gold price of $2550/oz and an AISC of $1578/oz.

Interestingly, the operation isn’t overly high grade with a reserve of 6.1 million tonnes at 2.4g/t for 460,000oz of gold and a resource of 24.3 million tonnes at 2.8g/t for 2.2 million oz of gold.

But at the current high gold price, grades of just 1-2g/t can generate good margins for gold miners.

“Ultimately, the major factor is return on investment and whether investors are comfortable with the risks involved in getting their money back with a handy profit on top,” Wendt said.