Not one, not two, but three for Dacian as first gold production looms
Plus, Tawana set for re-rate on imminent lithium production
16th February 2018
What do you do if you’re within seven weeks or so of producing your first gold from a shiny new 200,000 ounce-a-year treatment plant to be fed by both underground and open-cut mines where you’ve proved up an initial 1.2m ounce mining reserve?
You go out a find a third potential source by making a significant discovery that sits between the two mines, less than 10km from the treatment plant.
And when the new discovery raises the likelihood of being able to run softer oxide material through your new plant to boost gold production in its early years, all the better.
That is what Dacian Gold (DCN) has pulled off at its Cameron Well prospect, midway between its Westralia and Jupiter mines at its Mt Morgans project, 25km south-west of Laverton in Western Australia.
Drilling at Cameron Well has now intersected good widths and grade over an area of 1.5km by up to 1km with Dacian confident the results lay the foundation for a maiden resource estimate to made.
That came through loud and clear in Dacian’s decision to start collecting data for a feasibility study into a mining operation at Cameron Well, with the extensive work done to date making it possible for a maiden reserve estimate to pop out as early as the middle of the year.
It is impressive stuff given Dacian only started reconnaissance drilling at Cameron Well in September 2016 – a time when it would have been forgiven for concentrating on getting Westralia/Jupiter in to production and nothing else.
Companies have to be careful nowadays about getting ahead of themselves on the importance of a new discovery. Dacian was suitably circumspect when it made the following statement on Cameron Well: “The company is now of the view that Cameron Well is a significant new discovery at Mt Morgans. Clearly more work is required and will be ongoing over the next few months, but it is the company’s view that Cameron Well may become the third operating mine at Mt Morgans.”
Now it has to be said that the market had been expecting some good news on Cameron Well and that some of upside was already in Dacian’s share price. That explains the low key response to the Cameron Well update during the week.
Dacian is trading at $2.84 after having been as high as $3 in late January. Like most other gold developers, what the market took away in the wake of Wall Street’s recent shakedown has yet to be given back, even if the local gold price is as strong as it can be at $1,706 an ounce.
Once the maiden resource and reserve estimates see daylight, and the impact on annual gold production from running Cameron Well’s oxide ore through the new mill is known, a potentially major re-rating event will be at hand.
Macquarie for one believes that the “soft oxide material from Cameron Well could materially lift the outlook in the early years of gold production at Mt Morgans” without taking a stab at likely numbers. Still, it does have a $3.80 target price on the stock as it is.
Tawana to re-rate on first lithium production
The recent shakedown in lithium stocks on fears that a new (but onerous) deal between industry heavyweight SQM and the Chilean government would somehow bring forward an oversupply situation looks to have been overdone.
But what the shakedown clearly demonstrated was that there is a real sensitivity in the market to the potential for oversupply in the battery material at some point.
Some suspect oversupply in 2019, others think the early 2020s, and others still think it will never happen, claiming there is a lack of understanding of just how disruptive lithium-ion batteries are going to be to the auto and energy industries.
Investors will have to make up their own mind on all that. What can be said with some certainty though is that it stands to reason that it is a case of the sooner-the-better for lithium projects to get in to production.
Establishing a presence in the market and being able to payback capital ahead of any over-supply occurring means lots of easy sleeps in the years ahead.
It is against that background that Mark Calderwood’s Tawana (TAW) deserves some kudos. Its 50:50 joint venture with Singapore-listed Alliance Mineral Assets expects to start ore commissioning at the Bald Hill project, 50km south-east of Kambalda in WA, early next month, with first deliveries of lithium concentrate to follow in April.
The $42m project is not the biggest one around. But when there is an offtake agreement in place with pricing for 2018 and 2019 of a fancy $US880 a tonne of lithium concentrate, it doesn’t need to be for a company the size of Tawana ($230m at 48c a share).
Along with the rest of the lithium stocks, Tawana got hit hard in January when the SQM deal was first aired. Canaccord Genuity for one reckons that Tawana was too harshly treated. It has a 60c price target on the stock.
“We believe Tawana remains one of the most undervalued lithium companies under our global sector coverage,’’ the broker said.
“Aside from first sales, other upcoming catalysts include an expected reserve update where following a resource upgrade in October 2017, we anticipate the reserve life could increase from 3.5 years to 7-8 years.
“Further drilling is planned in 2018, which could see the potential for additional resource (and reserve) upgrades over the coming 12 months.”
It is that latter point that would trigger a re-rating event for Tawana given the current light-on reserve position. But while it is currently light-on, Tawana is at least about to get the stuff on the dock at Fremantle well ahead of any over-supply situation emerging.
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