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EDITORIAL

The Australian gold sector

may be pulling out of its

recent malaise, thanks to a

bunch of upstarts...

by Dominic Piper

t the turn of the year, the industry was in somewhat of a The investor reaction to those setbacks leaked across the
Afunk. Equity performances were down as investors were entire junior sector and led to some uneasy times for would-be
turned off by increasing cash costs – due largely to tightening developers working to secure the finance packages needed
supply chains and labour shortages – and a spot price which to start production.
fell from its $US1,900/oz peak in May to as low as $US1,700/ The unease was only compounded by the onset of the
oz in late September. pandemic. With markets disrupted, some of the companies
The three months since then have seen unprecedented took alternative steps. Red 5 chose to raise the equity
upheaval as inflation fears, the war in Ukraine and monetary component of its project finance well before completing the
policies have conspired to drag the price below $US1,800/ feasibility study for its restart of the King of the Hills mine near
oz in January, catapult it beyond $US2,050/oz in early March Leonora. It was an unconventional strategy but one which
and plunge it back below $US1,950/oz at the time of print. appears to have paid off with construction starting before the
For gold equities, this yo-yoing has resulted in some limited labour and supply bottlenecks subsequently developed.
share price rebounds. However, while the established miners Now that they have achieved or are close to production, the
have posted modest gains, a group of rising producers has market could be prepared to back these new producers.
enjoyed a strong start to the calendar year. When Gascoyne, Dacian and Ora Banda were marked down
This edition of GMJ covers several of the next wave of by the market, it was at a time when the established producers
Australian gold miners, including our cover subject, Red 5 were performing strongly. Now, with the bigger companies
Ltd. struggling against rising cash costs and tightening margins,
Starting with Capricorn Metals Ltd – whose shares are up investors could see the newcomers as attractive alternatives,
168% year-on-year at the time of print – this new set of especially as new operations generally exploit the highest
producers are the strongest performers in the gold industry. quality parts of their orebodies upfront.
After a series of recent failures in the sector, Capricorn’s Further back on the development curve, De Grey Mining Ltd
success at Karlawinda – as well as West African Resources is on a different trajectory. As featured on pages 30-31, the
Ltd’s achievements in Burkina Faso and Emerald Resources company is still in the process of completing a PFS for its
Ltd in Cambodia – have reminded the market exactly what Mallina gold project in the Pilbara, Western Australia.
a strong construction-commissioning-ramp-up period can do De Grey’s situation is very different to the other developers.
for a developer’s share price. Where they enjoyed steadily increasing market support in
Canaccord Genuity analysts Paul Howard, Tim McCormack the lead up to development, De Grey’s task is to retain the
and Tyson Kestel identified this trend in a recent note to support it so dramatically secured in early 2020 after first
clients. discovering the Hemi project at Mallina.
According to their analysis, Capricorn, West African and The discovery led to De Grey’s value soaring to $1.9 billion,
Emerald (as well as Gold Road Resources Ltd who started even before it released its maiden inferred resource. It is
operations 18 months earlier) enjoyed an average 16% price currently valued at $1.7 billion. Given the size of the Hemi
increase prior to first gold and 69% following first gold. deposit – 6.8 moz gold in the maiden resource – a successful
development and construction will see the company far
In contrast, Dacian Gold Ltd, Gascoyne Resources Ltd and
exceed that mark but it is apparent the company can’t afford
Ora Banda Mining Ltd enjoyed an average 21.6% increase
to make too many false steps if it is to preserve that valuation.
prior to first gold but a 54.5% drop in the subsequent six
months as poor grade reconciliation and/or underwhelming
plant performance led each back to the market.

dominic@paydirt.com.au @Paydirt_Media @paydirtmedia @PaydirtMediaAustralia

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