First time posting here after opening a modest position on the day the PFS released. Despite having this on the watch list from mid June (~8.5c), the numbers in the report caught my eye and warranted the investment. Having the benefit of sitting on my hands for a while, I was able to do some due diligence on management, the Hillgrove project, antimony and generally tracking the sentiment of posters here with the ebb and flow of the market. All of this yielded some interesting data for me.
Being an investor rather than a trader often means putting aside further increases in profit (by jumping in sooner), in exchange for accumulating a holding that has a higher degree of confidence attached to it (through research, patience and DD). Penny stocks as we know are driven strongly by sentiment. This is something that we see time and time again on this end of the ASX.
A few of the less desirable aspects of this company/project have attracted a sentiment of reticence in recent times. Namely;
1. Hillgrove has passed hands a few times and was most recently operating unsuccessfully under management of RVR.
2. Gold-antimony deposits are notoriously difficult to mine.
3. Majority of the gold is refractory.
4. Having looked into the company history, many here have been critical of management for over promising and under delivering, especially with regards to time frames.
Point 1 has been raised numerous times by Ron. He has the benefit of having been involved with the project in the past (see 10 min mark of this recent
video), so this gives a degree of confidence about the positives and potential pitfalls to arise. Also, as mentioned, Hillgrove was operated until 2016 when the antimony price collapsed and then another crack was had by RVR shortly before they fell into receivership.The mine has only ever operated as a gold or antimony operation, never both simultaneously. This makes the project attractive with both being at all-time highs.
This brings us to point 2 + 3. Gold-antimony deposits pose several challenges in mining and processing due to their complex nature. The antimony in our resource exists in stibnite. Stibnite (Sb₂S₃
is a common antimony mineral that can be problematic. This deposit contains gold in a sulphide matrix, which complicates the extraction process. Sulphide ores require specific treatment methods to liberate the gold effectively. The fact that the gold is refractory then further complicates this. As we are looking at selling both minerals, the treatment process could look like the following;
Before or during the gold extraction process, antimony needs to be managed or removed to prevent interference with gold recovery. This might involve specific chemical treatments or additional stages of ore processing. Techniques to stabilize or neutralize antimony during ore processing can be crucial to ensure it does not affect the efficiency of gold extraction. Antimony can be removed from solutions through precipitation methods, where chemicals are added to form insoluble compounds of antimony that can be filtered out. It can also be removed using high-temperature processing to separate it from the gold which will also increase processing costs. It is important to remember that Antimony and its compounds are toxic and create harmful waste, which will be a further cost consideration.
For the gold processing, refractory treatment methods can involve;
Pressure Oxidation (POX)
Autoclaving: For refractory ores, pressure oxidation is often used to oxidize the sulfide minerals and break down the gold-bearing matrix. This high-pressure, high-temperature process can help liberate the gold from its refractory matrix.
Acid Pressure Oxidation: This involves adding acid to the pressure oxidation process to further enhance the breakdown of refractory minerals and release gold.
Roasting
Sulphide Roasting: Roasting involves heating the ore in the presence of oxygen to oxidize sulfides and other minerals, making the gold more accessible. This step can also reduce the volume of the ore and facilitate the removal of certain elements, including antimony.
Bioleaching
Microbial Leaching: Bioleaching uses microorganisms to oxidize sulfide minerals and other refractory components. This can help break down the matrix holding the gold, making it more amenable to subsequent cyanidation.
Cynide Leaching with Pre-Treatment
Pre-Treatment Methods: Refractory gold ores often require pre-treatment methods such as roasting, pressure oxidation, or bioleaching before cyanidation. These pre-treatments help break down the refractory matrix, making the gold more accessible to cyanide.
Direct Cyanidation: After pre-treatment, conventional cyanide leaching can be used to dissolve the liberated gold.
Whole-Ore Cyanidation
Enhanced Cyanidation: In some cases, whole-ore cyanidation is used for refractory ores, often in combination with pre-treatment methods to improve gold recovery.
Chlorination
Chlorine-Based Processes: Chlorination can be effective for certain types of refractory gold ores, particularly those that are resistant to cyanide leaching.
I am not a geologist and the above is not designed to focus on the negatives of the project but to draw attention to potential drawbacks that we need to consider when trying to value the project. This was all part of the DD I did beforehand and in full disclosure, in the past I have steered clear of refractory ore bodies due to their increased cost and complexities. However, some of the most profitable mines in Australia are refractory (Fosterville - Kirkland, Kalgoorlie Super Pit - NST, Telfer + Cadia - Newcrest, Higginsville - Karora. High grade is needed to forgive a refractory deposit and we have that in spades.
One thing I would have liked to have seen more understanding of within the PFS was discussion around the increasing costs based on the above analysis. I do believe though, that we will see this extrapolated in the DFS coming later this year/early next year.
With respect to point 4, this is where investing psychology comes into play. As Ron pointed out, they had hoped to get the Hillgrove project wrapped up in a few months, it took 9 months. He has had a tendency to use his "two weeks" line, however from what I am seeing, there are many things beyond his control. Permits were received Friday 9th August, with one RC rig to arrive plus 2 DD rigs. This gives us constant news flow until the end of the year. What is curious to me is that the Antimony story has been unfolding for quite some time. To the eagle eyed investors here who invested earlier, it was obvious that a critical mineral listed as the top critical mineral was at some point going to increase in value, given that we hold the 8th largest deposit in the world (and growing) and the largest in Australia with a working mine, and with upgrade equipment sitting onsite in "plastic wrapping" (Ron's words, not mine). Geopolitical tension has been the talk of the town for some time as well.
Of course, for myself, this wasn't good enough, having been burnt in the past, and having some solid economics in the PFS helped me to increase the confidence of my investment. It took a ban from China for the retail brigade to open their eyes to what the cornerstone investors and the 60-70% of the shares owned by the Top 20 already knew. Thursday was a classic example of this, day traders, mums and dads looking for a quick buck and investors jumping in and out on a whim got frightened with a 10% fall in the stock. No doubt, some of these same people would have been back in on Friday, trying to make another quick buck or two. Some of whom also post on HC day trading threads begging for others to pump the stock. This kind of behaviour is rife in the penny stock mining space, well documented and yet institutions (and savvy traders) play retail like a fiddle, watching panicked individuals sell while they mop up cheap shares. Now I am not an analyst, nor do I closely refresh the course of sales all day long, but my occasional glances at the line wipes on Friday gave me the feeling that serious accumulation was taking place by an entity/entities with deep pockets.
Comparison with Southern Cross Gold (SXG)
This is an exciting comparison but one that I still feel is premature. That is the cautious side of me speaking. Most importantly, SXG does not have a refractory ore body. Their preliminary metallurgical testwork found
here on pg 19 suggests that a simple gravity flotation flow sheet can be used, siginificantly driving down costs. Now, is this $200m worth of savings, in the order of our plant which is ready to go with minimal CAPEX? No it isn't, but nonetheless something that the market considers. I do however feel that we are still significantly undervalued in comparison, hence my investment.
Some extra-valuation thoughts
Upon reading the PFS and deciding on how much to invest, I had also done some rough calculations on what project value should be. These are probably not accurate but worth sharing my thought process and where rough fair value may sit. For this, I looked at the Free Cash flow to Market Cap multiple of every gold producer on the ASX as well as the PFS of the companies mentioned above. I found that the multiple sat anywhere between 5x-15x. Developers and near term producers may be lower than this as you'll see below.
Now applying this to our PFS. Using base case (not spot) we have pre-tax NPV8 FCF of $261 million. Divided by the 7-year LOM, this gives annual FCF of ~$37m. If we take the lower end of 5x, this gives a market cap of $185m. If we take 2.5x to be even more conservative which is unrealistically low, this gives us $92.5m market cap. Now considering that the gold price, and hopefully antimony will be higher upon production in early 2026 AND the resource is growing, these numbers could be easily double just attributable to the resource. Given that comparable junior gold producers have a market cap of between 7.5x to 12.5x of FCF, that adds further multiples to the share price.
I am not one for blown up figures and ramping but just for some food for thought. Taking Ron's "we think we can double the resource to 3m oz", thats a 14 yr LOM. If we decide to take spot of $2500 USD and extrapolate the cash flow to ~$1bn (261 *4) to account for double LOM and double resource size, we get 1bn/14 = ~$71m yearly FCF post-tax. I understand that this doesn't take into account cost discovery for deeper drilling, plant upgrades etc, but even at a super conservative multiple, this is leaps and bounds above where we are market cap today. Take the following ranges with a grain of salt.
71 * 2.5 = 177.5m MC
71 * 5 = 355m MC
71 * 7.5 = 532.5 MC
71* 10 = 710m MC
71 *12.5 = 887.5m MC
Comparison with other gold projects
I did abit of a deep dive into the PFS figures of some other ASX-Listed Gold development projects just to see how their numbers stack up to ours. These don't have antimony, but since we are dealing in AU Eq, the numbers give some decent ball park economics + valuation.
Magnetic Resources (MAU)
No plant + non-refractory - 1MOz+ 2 g/t - 8 year LOM. NPV8 $925m at 3,200/oz AUD = yearly pre-tax FCF $115m. Market cap = $426m FCF/MC multiple = 3.7. I'm not particularly fond of the fudging that MAU did in their updated PFS as they pumped up the numbers but have kept it here nonetheless.
This is close to LRV's base case of 361/7 = ~51m. Applying this multiple: 51*3.7 = ~189mm MC for LRV.
This is a company that the vultures have been circling around and is likely to be taken out soon, Genesis, Anglo and GoldFields are the rumoured interested parties and all have plants in close proximity <35km.
Rox Resources (RXL)
No plant + refractory - ~800 oz 4g/t - 8 year LOM. NPV8 $486 at $3100/oz = yearly pre-tax FCF ~$61m. Market cap = 55m FCF/MC multiple = 0.9.
Close to LRV case 261/7 = ~$37m. Applying this multiple 37m * 0.9 = 33.5m MC for LRV.
This project will likely struggle to get the funding it needs and may languish sideways due to the grade and lack of infrastructure. The comparison attributes no value to our plant.
Black Cat Syndicate (BC8)
2 plants + non-refractory + small antimony resource - 548k oz at 4g/t + 1.3m oz at 2g/t - 11 year LOMN. NPV $600m at $3500/oz = yearly pre-tax FCF ~$55m. Market cap = 157m. FCF/MC multiple = 2.85.
Close to LRV case 473/7 = ~62m. Applying this multiple 62 * 2.85 = ~176m MC for LRV.
None of the above is investment advice. Please do your own research, as this is just in my opinion. Some of what I may have said may be off the mark and I welcome advice and discussion on that, but hopefully it helps give some clarity about the rough range on where we should be sitting valuation wise.
Good luck to all holding here. I believe we have an exciting time ahead of us.
Cheers,
PutSauce
(20min delay)