Rugby, got this from my broker at Morgan’s, may have something to do with the buying, like a few on here I have been in AUC for quite a while, boring as, my other play in graphite is also a hard slog but AUC is a good story unfolding although be it a very long and slow process that I am confident will pay off in the end.
We initiate coverage on Ausgold with a Speculative Buy rating and A$0.07 target price.Ausgold reported a robust Preliminary Feasibility Study (PFS) into the A$225m development of the 2.16Moz resource at the Katanning Gold Project (KGP) in WA to produce a life-of-mine average of 105kozpy of gold at a projected All-in Sustaining Cost (AISC) of A$1,480/oz over an 11-year mine life from open pits.A gold price of A$2,300/oz generates payback in less than 2 years. Reserves (to JORC Code (2012) standards) are 32Mt @ 1.25g/t Au. The project area is freehold land, and the Reserves are on granted Mining Leases, with much of the area disturbed by previous shallow open pit mining.We see limited regulatory risk. Limited previous mining operations also suggest minimal operational risk, although a Definitive Feasibility Study (DFS) is yet to be delivered. We see limited risk for the DFS. In our view financing the project is the most significant short-term risk, with construction carrying typical industry risk. The FY2022 Annual Report:The FY2022 Annual Report noted that a Definitive Feasibility Study is to be delivered in 2023, after delivery of the PFS in May 2022.Ausgold notes that development of a robust geological model and ongoing drilling at the KGP will support its focus on developing “one of the largest undeveloped free-milling open pit gold projects in Western Australia”. The Preliminary Feasibility Study:The PFS evaluated open pit mining, processing 3Mtpy of ore at a head grade of 1.25g/t Au over 11 years, producing a life-of-mine (LOM) average of 105kozpy of gold. The first 6 years of production are projected at a grade of 1.47g/t Au producing 126kozpy, with lower costs per ounce leading to a faster payback.The pre-production capital cost was estimated at A$225m. The AISC was projected at A$1,481/oz over the LOM, and at A$1,370/oz over the first six years processing higher grade ore.Valuation in its cohort:Gold deposits in WA which can provide satellite tonnage for an existing mill, or are large enough to support a stand-alone development, show valuations per ounce of gold in Resources from A$16/oz to A$240/oz, with an arithmetic mean of A$69/oz. The stage of the resource evaluation, grade, and the identification of likely operational parameters inform the valuations.The KGP reports 82% of the Resource in Measured and Indicated status. A PFS indicating a profitable operation was delivered. Assigning a value of A$69/oz to the 2.16Moz KGP resource generates a rounded valuation of A$150m, or A7cps. Investment view:The PFS used a gold price of A$2,300/oz, compared with spot above A$2,600/oz (US$1,650/oz and AUD/USD 0.63), and in our view is appropriate for this deposit.The PFS identified a short payback period of 1.7 years, and a pre-tax internal rate of return (IRR) of 50.5%, both attractive in our view.Price catalysts:We expect delivery of a DFS broadly confirming or improving on the PFS should prove positive for the share price. The development decision, no doubt coupled with the financing solution, should also prove positive, dependent on the terms. A weak gold price or negative sentiment to junior resources - either commodity price or regulatory risk - would likely prove negative for the Ausgold share price.Finance and operating risks:Ausgold reported cash of A$8.6m at 30 September 2022, with a quarterly burn rate of A$2.0-2.5m. Funds appear adequate to support ongoing drilling and delivery of the DFS, but increased equity, the sale of direct project equity and/or mezzanine and conventional finance will likely be required to fund development.Subsequent to regulatory approval and funding, construction, development, and commissioning will carry the usual risks associated with a WA gold mine. In production the KGP will be subject to the usual operating risks, to US dollar gold price risk, and to the AUD/USD exchange rate, with costs such as labour in AUD.
Rugby, got this from my broker last week from Morgan’s, they are now covering it, might have something to do with some of the increased buying.
ALH.
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