Company overview Real-time quote CTO.AX , 0.205, +0.010, +5.130%) was about to raise $35 million through a placement to ramp up production at its Charters Towers gold operation in Queensland.
Ahead of that we bought 20,000 at 20c then sold half at 26.5c the following week after the news was confirmed.
In the weeks that followed, however, the stock along with most others drifted down again and last week sold as low as 16.5c on a turnover of 4.15 million as the company was about to present an update to the Mining 2008 convention in Brisbane, followed by the release of its September quarterly report.
The report was encouraging and the shares rallied to as high as 20.5c, before sliding again as the relentless bears sold them back to 18c.
This must be one of the safest gold plays in the market with $35 million in committed cash for development of its 10 million oz resource contained in 23 million tones of ore grading 14gm/tonne.
This resource is contained within only 10% of the known reef systems beneath a surface area of approximately 5km by 5km covering the field. The historic Charters Towers field yielded 6.6 million ounces at an average grade of 38 gm/tonne.
Managing-director Mark Lynch confirmed the company’s target was to reach an annual production of 250,000oz by 2011, rising to 310,000oz by the fourth quarter of 2012, with a projected 30-year mine life.
The first quarter of the current year has delivered a modest production of just 3960oz due haulage restraints, replacement of plant and equipment and the processing of lower grade ore extracted from development drives. The current quarter should show a considerable improvement following:
The completion of a 3Megawatt power upgrade during the last quarter, The boosting of mine operations to three shifts since August, seven days a week, and An acceleration of work on the western decline to access more ore
The daily rate of advance in the 5m by 5m decline was more than 8 metres/day, well above the Australian benchmark of 5.25m a day. Underground advance was 808 metres (622m in the previous quarter), up 30%, comprising 236 metres of ore drive and 572m of capital development.
More encouragingly, the cash operating cost for each ounce produced was reduced to $A371, compared with $A491/oz for the 13,784oz sold out of production of 17,497oz of production in 2007-08. Gold sales for that year averaged $917/oz, while sales for the first quarter of the current year averaged $A1,094/oz.
Since then the volatile gold price has spiked at well above $A1100/oz with the decline in the $A/$US. Adding further strength to gold as a safe haven, Citigold drew attention last week to the demand for physical gold the world is experiencing. The company quoted the Mitsui Commodity Risk Management Precious Metals Commentary for October 27, 2008: “Physical demand for gold and silver remains very, very strong — we are hearing of one ton a day off-take in Japan alone as people rush to swap cash into a hard asset.”
At the end of the September quarter, Citigold had net cash of $9 million after a negative operating cashflow of $5.18 million, reflecting fixed asset purchases ($2.08m), exploration and development $3.6m) and production and administration costs.
Citigold, which is listed in Dubai, has arranged to raise $35 million from Dubai Ventures Group Ltd, which will take an ultimate 18% stake in the company. An initial placement of 50 million shares at 20c ($10million), will be followed by a 9 percent convertible loan that converts at 26c to Citigold shares within 2.5 years ($15 million) plus options to acquire Citicorp shares at 26c within 2.5 years ($10 million).
With all that cash pledged, plus the upgrade of the mine workings and plant already carried out, Citigold must be one of the great gold stocks with assured growth potential in a market where gold is likely to remain one of the strongest commodities.
We’ve trebled our holding with the purchase of another 20,000 last week in anticipation of a bullish presentation to the mining talk fest. That restores our Citigold holding to 30,000 at an average price of 18c.
CTO Price at posting:
20.5¢ Sentiment: Hold Disclosure: Held
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