Gold juniors beginning to bask in bullion’s brighter glow

Calidus tipped for re-rate as production looms, Kingston set for cashflow via acquisition, shareholders scramble for Bellevue SPP and Sunstone's discovery drill hole does it again
18th November 2021
Barry Fitzgerald

Left behind for much of the year while lithium and the other battery metals did their thing, the gold juniors are back in town thanks to gold punching back through $US1,800/oz in convincing fashion on inflation fears.

Last quoted at $US1,860/oz ($A2,574), the yellow metal has put on more than $US100/oz since the start of the month. And Macquarie’s commodities desk strategy team reckon there is more to come.

Macquarie sees the potential for gold to move into the low $US1,900s – a level which would comfortably deliver the gold producers margins of more $A1,000/oz.

“Until the Fed pivots to a more clearly hawkish position, we expect prices to chop higher on the back of still-building inflationary concerns and increasing signs that the labour market is already in ‘late cycle’ territory,’’ Macquarie reasoned.

Gold’s price strength in the face of US dollar strength means that there is not exactly “let’s pile in’’ mentality just yet.

But a move into the low $US1,900s would certainly help, firing up interest in the junior gold explorers, developers and producers in the process.

The junior space offers the greatest leverage to a rising gold price. That has come through in the billion dollar-type deals and expansion plans announced recently by the gold majors having barely moved the dial.

Having said that, leverage works both ways, with many of the juniors still trading as if gold was still at its sub $US1,730/oz levels of late September. But they are on the march.

CALIDUS (CAI):

Gold developer Calidus (CAI) demonstrates the point. Its 53c share price at gold’s low point in September has since improved to 65c.

The company is well on its way to becoming a gold producer of note from its Warrawoona gold project near Marble Bar in the Pilbara.

Construction is more than 70% complete at the project which, in its stage one development, is good for average annual production of 90,000oz at an AISC of $A1,290/oz over an initial 8-year mine life.

Then there is the planned stage two expansion to 130,000/oz annually by including high-grade ore from the Blue Spec satellite deposit, carrying life-of-mine annual production to about 100,000oz.

As production draws closer, and assuming any cost inflation continues to be kept in check, Calidus is in line for a re-rating as Australia’s next gold producer of scale.

Canaccord had an 80c price target on the stock in early September, and the gold price has improved nicely since then.

So how meaningful will the re-rate be as production draws ever closer? Judging by the market performance of Capricorn Metals (CMM), the re-rate could be very meaningful.

Capricorn became a gold producer from its Karlawinda gold project in the Pilbara in June. It is now ramping up to 110,000-125,000oz annually. No AISC costs reported just yet, but the market is happy to value the company at $1 billion ($2.84c a share).

Karlawinda is lower grade than Calidus but has a bigger resource/reserve position. Still, the $750m valuation gap between the $250m Calidus and Capricorn does point to the potential scale of a re-rating for Calidus.

Clearly the market has been impressed to date with Capricorn’s ramping up of Karlawinda.

Calidus is not at that stage yet but the ramp-up phase is not far off now. In addition, the company has been earning brownie points around the market for its de-risking exercises at Warrawoona ahead of first production.

KINGSTON (KSN):

As supportive as the gold price currently is – and perhaps getting better still – it remains a challenge for a junior to fund a large-scale development.

That is the position that Kingston (KSN) has been in for some time now with its 3.8 million ounce Misima project on the island of the same name in PNG.

Once the Pacific jewel in the crown for Canada’s Placer, Misima is now the subject of a definitive feasibility study by Kingston into its return as a large-scale producer.

The DFS is due for release in the March quarter next year. The market in the stock has been biding its time, wanting to see the DFS before getting too excited about Misima Mark II.

Misima is being planned as a 130,000 ounce-a-year producer over an initial mine life of 17 years and at an AISC of $A1,159/oz. Plonk that in WA and its development would have happened years ago.

But Kingston itself realises that to capitalise on the game-changing potential of Misima, it would helpful if it could bulk up in some way to make the task of developing Misima with its PNG address all that easier.

It has done just that, with this week’s deal over the Mineral Hill gold-copper project in central NSW. Apart from anything else, the acquisition will immediately establish Kingston as a gold producer on the deal’s completion.

Mineral Hill is an historic operation which in recent times has been through the wringer. Previous ASX-listed owners were too under-capitalised, or were hit by weak prices, to make a go of the operation.

So much so the last owner went bust, leaving it to the major creditor, the privately-held resources investment group Quintana out of the US, to pick up the pieces in 2018.

Quintana has re-established Mineral Hill, initially as a producer of 40,000/oz of gold over 29 months at an AISC of $A1,550-$1,650/oz from tailings retreatment, with positive free cash flow expected early next year.

Being what it is and its US location, Quintana was not the natural owner of Mineral Hill.

So now Kingston gets to pick up the ball in a $22.7 million cash and shares deal involving only $1.3m in cash up-front, along with $10.7m upfront in equity to Quintana.

Kingston sees the tailing retreatment operation as a foundation from which to unlock the broader potential of Mineral Hill, which comes with reserves of 72,000oz of gold, and a resource base of 470,000oz of gold on an equivalent basis.

The reserves/resources are spread across a number of ready-to-go open pit and underground deposits, and there are a number of advanced exploration targets across the tenement package that Kingston will now be following up.

So it is both a production/exploration play which, if not for the project’s woes under previous owners, would have cost Kingston a lot more than it is paying.

Its challenge now is to make a real go of the tailings retreatment operation ahead of switching to hard-rock mining, and pinning down the exploration potential.

Funding for the deal comes from a $14m placement and a $4m share purchase plan at 20c a share. On the expanded issued capital, Kingston’s market cap would be $86m at 20c a share, up from $57m previously.

So the bulking up process to deliver new funding options for Misima is underway.

BELLEVUE:

Bellevue’s (BGL) recent experience with its share purchase plan also demonstrates how gold price momentum is prompting investors to return to the sector.

The $25 million SPP was priced at 85c and was being filled OK by what might be called supportive shareholders.

But when the gold price started its run, there was a rush of demand because Bellevue’s rising share price made taking up the SPP more of a no-brainer than it was.

Rather than scale back the SPP, Bellevue gave investors applying for their maximum of $30,000 of shares their head, and ended up taking subscriptions of $36.6m.

SUNSTONE (STM):

Impressive gold exploration results will always fire up a stock no matter what the gold price is doing.

Just ask Sunstone (STM), last mentioned here on October 8 when it was a 4c stock on the strength of impressive assays results from drilling at its large-scale El Palmar copper-gold project in northern Ecuador.

It has since shot to 10c a share, with the latest kicker coming in response to a spectacular gold hit in the south of country at the Bramaderos project.

The first hole into the Alba prospect returned an interval of 111m grading 2.35g/t gold, including 7.2m at a spectacular 26.88g/t. All at relatively shallow depth too.

One hole does not make a mine but jeez, results from the first hole at Alba is a good a start down that pathway.

Sunstone reckons the high-grade zone is a gold-rich “event’’ over the top of an earlier, and deeper gold-copper porphyry system. The next hole will test the depth extension of the find and will followed by a test of its lateral extent.

Meanwhile, new assay results from drilling at El Palmar can’t be far off. So news flow from the company from not one, but two, potential major discoveries will be good as these things get.

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