With the gold price losing ground over 2021, from US$1,898 an ounce to US$1,815 ($2,486) an ounce, it’s been a tough year for ASX-listed gold producers – on top of that, in many cases, there are their own company-specific issues. But quite a few of the Australian group are poised to improve their production and reserve performance. Here are 4 of what I think are the best-positioned Australian gold miners.
1. Gascoyne Resources (GCY, 30.7 cents)
Market capitalisation: $80 million
FY22 estimated dividend: no dividend expected
Analysts’ consensus valuation: 80 cents (Thomson Reuters)
+158.1%
FY21 production 77,278 ounces – meeting guidance – at AISC of $1,308 an ounce, within guidance
FY22 guidance: production of 70,000–80,000 ounces of gold at AISC of $1,600–$1,700 an ounce
A solid June quarter finished off a good FY21 for Gascoyne, which owns the Dalgaranga gold mine in the Murchison region of Western Australia. Gascoyne met its production guidance for the year, with 77,278 ounces at AISC of $1,308 an ounce, and an average realised price of $2,574 an ounce giving a healthy AISC margin of $1,266 an ounce. (AISC stands for “all-in sustaining cost,” a measure that incorporates not only the “cash cost” of production, but all the costs that allow production to be sustained.)
The company expects to produce between 70,000 and 80,000 ounces of gold at AISC of $1,600 to $1,700 per ounce for FY22 – although this figure doesn’t include any contribution from the assets of Firefly Resources Limited, the fellow Murchison operator with which Gascoyne announced a merger in June. Firefly has a highly prospective suite of assets, including the Yalgoo gold project, and the merger rationale is to combine the two groups of assets around the processing infrastructure at Dalgaranga.
The combined company hopes to bring Firefly’s Melville deposit at Yalgoo into production by the first quarter of financial year 2023. In particular, bringing shallow, high-grade Yalgoo ore into the production profile has very good potential to extend mine life, reinforcing Gascoyne’s position as a major gold producer in the Murchison region. Firefly also brings to the merger some great exploration prospects. It’s a good example of a constructive deal that creates a larger gold company with an increased mine life, enhanced production profile and exploration potential.
2. Resolute Mining (RSG, 54.5 cents)
Market capitalisation: $596 million
FY22 estimated dividend yield: 2%, unfranked
Analysts’ consensus valuation: 99.7 cents (Thomson Reuters)
+76.5%
Africa-focused gold miner Resolute owns and operates three gold mines in Africa – Syama in Mali, Mako in Senegal and Bibiani in Ghana – and the mines produced 77,450 ounces of gold in the June 2021 quarter, at an AISC of US$1,319 ($1,806) an ounce. However, that is a far cry from the 110,000 ounces of gold Resolute produced during the March 2020 quarter, which was a record quarterly production for the company.
The June 2021 quarterly result was a poor one for RSG shareholders, with production and sales both down, and costs higher costs – and it flowed-through to a downgrade of the company’s full-year guidance. Total production for 2021 is now expected to be within the range of 315,000 ounces–340,000 ounces, at an AISC of between US$1,290–US$1,365 an ounce.
The company has also suffered this year from strange treatment at the hands of the Ghanaian government. Resolute had negotiated a deal to sell the Bibiani mine to Chinese company Chifeng Jilong Gold Mining, for US$105 million ($143.8 million). But just two weeks before the sale was due to settle, the government terminated the mine’s mining licence. It has since reinstated the licence, but has forbidden its sale to Chifeng Jilong Gold Mining. Resolute is working on a strategic review of Bibiani – it says it has “a number of parties” interested in buying the mine.
From the heights of $2 in August 2019, Resolute’s slide to 55 cents has been a huge disappointment to shareholders. But that could work in new buyers’ favour, particularly if the company’s longer-term plans come to fruition. In April, Resolute released an updated Life of Mine (LOM) profile, setting out average annual gold production of 380,000 ounces between 2021 and 2026 at an average AISC of US$1,070 ($1,466) an ounce. Over the long term, the LOM forecasts total gold production of 3.6 million ounces at an average AISC of less than US$1,020 ($1,397) an ounce, through to 2032.
Significant upside also exists for both Syama and Mako, where RSG expects near-mine exploration and development to deliver further increases to Resolute’s production profile and life. I think you can make a case for buying RSG on that score.
3. Red 5 (RED, 19.2 cents)
Market capitalisation: $458 million
Analysts’ consensus valuation: 31.2 cents (Thomson Reuters), 31 cents (FN Arena)
FY21 production 76,104 ounces, within guidance of 74,000 – 78,000 ounces
Total gold sales for FY21 of 75,907 ounces at an AISC of A$2,273 per ounce of gold sold (guidance of $2,240–$2,290 per ounce).
Last month, Red 5 took an important step, selling its mothballed Philippines mining interests, and signalling that its focus is now fully on becoming a mid-tier Australian gold producer at its King of the Hills and Darlot gold mines in the Eastern Goldfields region of Western Australia (although it has maintained future exposure to any upside at the Siana gold mine in the Philippines through a net smelter return royalty of 3.25%, once production resumes in 2023).
The company has the Darlot underground mine producing and is presently building the mining and processing infrastructure at King of the Hills, where a 2.4-million-ounce ore reserve underpins an initial 16-year mine life, with first gold production on track for the June quarter of 2022. At the existing production base at Darlot, total gold sales for FY21 came in at 75,907 ounces at an AISC of $2,273 per ounce of gold sold (guidance was for $2,240–$2,290 an ounce). This was lower production and higher costs than the initial FY21 guidance had envisaged. There was a small contribution from the new Great Western open pit, and the company pointed out that “the difficulty of sourcing skilled labour” for both Darlot and Great Western was a factor in not achieving guidance.
However, I think you have to look at Red 5’s plans, which entail Darlot becoming an additional high-grade satellite source for the new King of the Hills processing plant, which should enable costs to come down significantly. RED has been hammered from its 2020 peak of 33 cents, but again, that opens up quite appealing value for new buyers.
4. Regis Resources (RRL, $2.65)
Market capitalisation: $1.8 billion
FY22 estimated dividend yield: 3%, fully franked (grossed-up, 4.3%)
Analysts’ consensus valuation: $3.43 (Thomson Reuters), $3.49 (FN Arena)
Regis posted an impressive June 2021 quarterly performance, with production totalling 114,145 ounces of gold at an AISC of $1,387 an ounce, pushing the company to full year-gold production of 372,870 ounces at an AISC of $1,373 an ounce. Despite the strong finish, FY21 full-year gold production of 372,870 ounces, at an AISC of $1,373 an ounce, was below company guidance and consensus forecasts.
For the quarter, the flagship Duketon gold operation in the Eastern Goldfields region of WA saw a record production of 96,829 ounces at an AISC of $1254 per ounce which marks an improvement from the 85,748 ounces at an AISC of $1388 an ounce produced in the previous quarter.
The Tropicana gold operation in WA, of which Regis bought 30% in May, contributed 17,317 ounces of gold at an AISC of $2,121 an ounce. Tropicana is estimated to produce between 450,000 and 500,000 ounces of gold after the 2022 financial year.
Things are looking-up at Regis: the company’s FY22 production guidance range is 460,000–515,000 ounces, at an AISC of $1,290 an ounce–$1,365 an ounce. At the midpoint of the guidance range, production would be 37% higher (487,500 ounces) than FY21 production, while the production costs guidance, at the midpoint, would be 3% lower ($1,327.50 an ounce) than FY21.
With Tropicana starting to contribute meaningfully, and a decision on the company’s major growth prospect, the potentially large-scale McPhillamys gold project in New South Wales, due by the end of 2021, Regis looks to have plenty of value in the current share price. McPhillamy’s is a big deposit, it’s one of the largest undeveloped open-pit gold projects in Australia, and positive news on it should certainly push RRL higher. And the bonus with Regis is that it is a fully franked dividend-payer.
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