Gold’s rise this year has caught many investors by surprise, as the yellow metal has surged from US$2,062.92 an ounce at the end of 2023 to a record high spot price that pushed above US$2,400 on Friday – and given events in the Middle East, US$2,500 could be on the cards.
Already, investors were buying gold in the expectation that the US Federal Reserve would cut its benchmark interest rate this year is the main driver for the yellow metal; and central bank purchases – particularly by the People’s Bank of China (PBoC), which has now been a net gold buyer for 17 straight months – were also acting as a tailwind. Private Chinese investors have also been buying gold as an alternative asset, in preference to property and shares. The renewed safe-haven boost from the deteriorating Middle East situation is adding fuel to the fire.
For Australian gold producers, the gold surge translates to an Australian-dollar gold price of close to $3,700. That does not necessarily apply to every ounce they mine, but the trend is definitely in the right place for the Australian industry.
Here are three Australian producers (a near-producer, in De Grey’s case) that I think represent good buying opportunities in the current gold environment.
De Grey Mining (DEG, $1.375)
Market capitalisation: $2.5 billion
12-month total return: –15.6%
3-year total return: 4.9% a year
FY25 estimated yield: no dividend expected
FY25 estimated price/earnings (P/E) ratio: n/a
Analysts’ consensus target price: $1.70 (Stock Doctor/Refinitiv, nine analysts)
When it comes to the Pilbara region of Western Australia, most people think – quite rightly – of iron ore, but in 2019, De Grey Mining changed the game for the Pilbara with a large-scale, high-value, near-surface gold discovery at an area called Hemi, within the company’s wholly owned Mallina gold project, located 80 kilometres south of Port Hedland.
Quite simply, it was a globally significant gold discovery.
Hemi has a total resource of at least 254.5 million tonnes at a gold grade of 1.3 grams per tonne (g/t), for 10.5 million ounces. But the definitive feasibility study (DFS) is based solely on the Hemi ore reserve, of six million ounces, at 1.5 g/t gold. The all-in sustaining cost (AISC) of operations – a figure that incorporates not only the “cash cost” of production but all the costs that allow production to be sustained – is estimated at less than $A1,300 an ounce. The DFS estimates peak production of 570,000 ounces in year two, and an average annual gold production of 553,000 ounces, over a mine-life of 12 years.
As more exploration is completed, there is high potential for the deposit to grow, but already, Hemi looks like it will be a top five Australian gold mine. De Grey has stated its aspirational target for Hemi is a project capable of producing more than 300,000 ounces a year of gold, for at least ten years. Ongoing exploration across the deposits is aimed at increasing the project’s mine-life to at least 15 years.
De Grey Mining aims to complete the project financing process by mid-2024, with full construction activities beginning in the second half of 2024 and the first gold pour targeted for the second half of 2026.
The definitive feasibility study (DFS) indicates a payback period of less than two years, pre- or post-tax, assuming a gold price of A$2,700 an ounce, which looks conservative in the current environment, to say the least. If expansion plans go ahead, the company said it is considering the potential for underground production at the same time as open-pit production at Hemi.
At current prices, De Grey still looks to be compelling value.
Kaiser Reef (KAU, 15.5 cents)
Market capitalisation: $27 million
12-month total return: –13.9%
3-year total return: –19.9% a year
FY25 estimated yield: no dividend expected
FY25 estimated price/earnings (P/E) ratio: n/a
Analysts’ consensus target price: n/a
Kaiser Reef Limited was floated in 2020 to acquire the Stuart Town project, which covers a significant historical gold mining district in New South Wales, with more than 80 recorded historic gold workings. The Stuart Town project is located between Newmont’s Cadia mine — Australia’s largest gold mine, producing 597,000 ounces of gold in FY23 – and the Boda copper/gold discovery made by Alkane Resources.
But things changed in January 2021, when Kaiser Reef took over Centennial Mining, which brought with it a group of assets in Victoria, including the A1 gold mine, Maldon goldfield (currently on care and maintenance) and the Maldon processing plant which treats A1 ore.
Kaiser Reef immediately became a producer, at A1. The A1 gold mine has produced 620,000 ounces of gold since 1861, at about 25 g/t of gold, and even recently, it produced at about 11 grams per tonne in the 18 months before Kaiser Reef picked it up. To put that in context, anything above 5g/t gold is considered high-grade by modern standards (even the ‘waste’ tailings at A1 averaged close to 3 g/t gold.)
Kaiser Reef fully owns the Maldon Goldfield, which has produced more than 1.7 million ounces over its life at an average grade of 28 g/t gold, from a number of historic high-grade mines, including Nuggety Reef, a project which historically produced about 300,000 ounces of gold at the truly staggering grade of 187g/t, but hasn’t been operated since the mid-1800s – like many of Australia’s historically worked mines, it was plagued by engineering issues, most notably rising water levels: it certainly wasn’t that the diggers ran out of gold. Working from the modern established decline below the goldfield, Kaiser Reef is drilling on Nuggety Reef at the moment. Being located less than five kilometres from Kaiser’s operating Maldon gold processing plant, Nuggety Reef could become a second mining centre for the company.
In the year to 30 June 2023, the A1 Mine produced 11,350 ounces of gold, up 30%, at an average realised price of $2,705 an ounce. In the most recent quarterly report, for the quarter ended in December 2023, the company produced 1,746 ounces, processing 7,363 tonnes of ore at an estimated average grade of 6.2 g/t of gold and realising a gold price of $3,055 an ounce.
Kaiser Reef has mainly been mining among the historical levels in the A1 Mine, but in 2024 the company has started to move into higher-grade unmined targets below the historic workings. This year, it has entered the Dukes Reef, a substantial and high-grade historical production reef, and has also made new reef discoveries below historical levels.
Kaiser Reef hasn’t forgotten the New South Wales areas that it was established to explore; in December, it was awarded a suite of exploration licences over the northern extent of the highly endowed and prospective Macquarie Arc near Walgett in western NSW. But Victoria is what should be front of mind for investors contemplating Kaiser Reef.
Alkane Resources (ALK, 69.5 cents)
Market capitalisation: $419 million
12-month total return: –22.5%
3-year total return: –1.4% a year
FY25 estimated yield: no dividend expected
FY25 estimated price/earnings (P/E) ratio: 9.7 times earnings
Analysts’ consensus target price: 80 cents (Stock Doctor/Refinitiv, three analysts)
Alkane Resources mines gold at the Tomingley gold project, south-west of Dubbo in the Central West region of New South Wales; Tomingley is an open-pit mine and underground operation with a one-million-tonnes-a-year processing facility which has operated since 2014. Alkane also controls several highly prospective gold and copper tenements in Central West NSW: its Boda and Kaiser deposits, near Wellington east of Dubbo, have the potential to be a large, tier-one gold-copper project.
At Tomingley, open cut and underground mining have been based on the Caloma, Caloma Two, Wyoming One and Wyoming Three deposits. In FY23, the company beat its guidance, producing 70,253 ounces. Alkane is working on the Tomingley Gold Extension Project, which will extend gold mining operations to the San Antonio and Roswell deposits immediately south of the existing mine (three kilometres away): the project is linked to the mine by an underground decline.
The higher grades that Alkane expects to be mined, beginning at Roswell, should lift production to around 80,000 ounces a year, which the company says is the first stage on the pathway to regularly producing more than 100,000 ounces a year at Tomingley, which it hopes to achieve in the next 18 months. Alkane projects gold production at Tomingley to continue until at least the end of 2032, producing more than 750,000 ounces of gold. At current mining costs of about A$2,000 an ounce, Alkane could be looking at cashflow of more than $80 million a year, before exploration investment. In that case, levels around 70 cents could prove to be a good buying opportunity.
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