Article in The Australian

Mining billionaires spread risk with new investments

• THE AUSTRALIAN
• AUGUST 14, 2015 12:00AM

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Barry FitzGerald

Resources Editor
Melbourne
Billionaires have sleepless nights worrying about wealth preservation, poor things.
“Spread the risk” is the best advice for them. And that is exactly what two of our own have done, albeit in a very small way, but in Victorian gold no less.
First there is Gina Rinehart bankrolling a joint venture with ASX-listed Catalyst (CYL) in the hunt for a “new Bendigo’’ goldfield at the Four Eagles gold project area, 70km north of the “old’’ 22 million ounce Bendigo. Some decent hits of late suggest the joint venture is on to something.
But today’s interest is in another iron ore mogul, Fortescue’s Andrew “Twiggy’’ Forrest. His family interests have pumped $2m into ASX-listed A1 Consolidated Gold (AYC) through a convertible note, giving him a grip on 14 per cent of the company.
AYC’s namesake mine is all of two hours’ drive from Melbourne in northeastern Victoria’s high country, and is in the process of being returned to production, adding to a history that stretches back to the 1860s.
An adviser to Twiggy on his personal mining interests, geologist John Clout, ran his seasoned eyes over A1 ahead of the investment and it has to be assumed that AYC’s revitalisation plans got his tick of approval.
Twiggy was introduced to the investment opportunity by the broker Patersons, which coincidentally yesterday issued a research note on the company, rating the stock as a speculative “buy’’ with a target price of 7c. It was trading yesterday at 5.3c.
Patersons reckons that over the next 12 to 24 months, AYC has the potential to emerge as a 50,000-60,000 ounce gold producer, underpinned by high-grade ore from A1 being trucked 320km to Maldon in Victoria’s golden triangle for treatment in an existing treatment plant, one picked up by AYC from Ian Gandel’s Octaganol Resources (ORS) in a scrip deal which makes Octaganol the biggest AYC shareholder with a 38 per cent stake.
AYC’s initial plans are a more modest and more doable 30,000 ounces a year from the A1 alone — the Union Hill mine at Maldon could kick in later — at an all-in sustaining cost of less than $850 an ounce.
If that were happening now, AYC would be bagging a margin of $670 an ounce. Spread that across 30,000 annual ounces, and you’re talking about $20m, which is kind of interesting for a company valued yesterday at about $24m. The key to it all is the high-grade and good mining-shaped stockwork-type mineralisation at the A1, rather than the narrow quartz vein stuff normally associated with Victorian gold.
The man in charge of making it all happen is AYC managing director Dennis Clark, a mining contractor for the last 25 years. He has 40 years of underground mining experience, including time as mine manager at the A1 under previous owners.
He owns about 10 per cent of AYC and runs a tight ship. AYC’s head office is split between the mine site and his NSW home, and typical of a mining contractor’s approach, the on-hold music playing on the mine site’s phone is a Johann Strauss waltz because no one knows how to change it to something else, and because no one is going to be paid for advice on it either.
Patersons in its research note says AYC is now in a proof-of-concept phase. “However, with this proof expected over the next three months, the focus will become how much cash the company might generate and what it might do with it,’’ Patersons said.
On that score, the first gold bar produced from a trial parcel of A1 ore at the Maldon treatment plant is not far off. Twiggy, down to his last $2 billion because of the iron ore price collapse, and what now passes for a Victorian gold industry, will be cheering Clark and AYC on.