aussie gold juniors on the rise

By: Peter Gonnella (US Mine web) 27/10/2003

PERTH – The positive impact of the powerful gold market on equities this year has finally flowed through to the junior end of the sector which had suffered a miserable decade of scraping the barrel. Now new specky IPOs are coming out of the woodwork, old projects or companies are being repackaged and refloated, exploration expenditure appears to be turning around, small asset cast-offs are being acquired and redeveloped, and raising capital and risk considerations don’t seem to be a problem.
Respected research firm Aegis Equities confirmed the market’s renewed passion for junior golds. Notwithstanding the bullish sentiment and improved level of investor support, it pointed out that many gold juniors still experienced "amazing" average share price growth in the September 2003 quarter – in the order of about 65 percent, according to an Aegis survey, compared with a 19 percent increase in the ASX 200 materials index for the same period. “With the gold price approaching US$400 per ounce and resources stocks running, investors are becoming less risk averse and projects, uneconomic at lower prices, are being dusted off,” said Sydney-based analyst, David Radclyffe.

Major rationalisation of the Aussie gold sector over the past three or four years has limited the choice of first- and second-tier locally-based gold miners, but while this has certainly been a key factor in dragging juniors out of the doldrums, what has really recharged investors has been the combination of gold industry consolidation and the influence of this year's strong gold and commodities rallies that has spurred them to dive into explorers and emerging gold producers in their droves.

A bevy of new ASX gold floats have had no troubles raising capital and several more are preparing to list before the end of the year with their prospectii generally easily oversubscribed. However, it’s not just the IPOs grabbing the attention. One of those penny dreadfuls that has been chipping away for 10 years and is slowly gaining greater market awareness is Giants Reef Mining [ASX:GTM], which has just graduated from explorer to producer.

In the weekend Giants Reef poured first gold from its high-grade Chariot open pit and underground project at the Warrego treatment plant 60km away, where it hopes to produce an annualised 60,000 ounces at an average cash cost of A$250/oz over an initial three-and-a-half years. The company purchased Chariot from Normandy Mining and Sons of Gwalia in various stages and the Warrego plant from Normandy for a total of A$14 million. In addition, Aussie gold analyst John Macdonald forecast a life-of-mine capital cost for both assets of about A$23 million (including an upfront pre-production component of A$18 million), most of which is to be taken up by the decline development. The acquisition and project development were equity and debt funded.

Based on a received gold price estimate of A$560/oz, Macdonald expects the conventional Chariot operation to generate surplus cash flow of about A$35 million between production start-up and June 2007 and achieve project payback by mid-2005. “The real, after tax net present value at a 5 percent discount rate, net of hedging and tax benefits, is A$27.5 million, and the internal rate of return is 82 percent,” he added.

Latest stated proven and probable reserves at Chariot stood at a modest 426,172 tonnes grading 14.9g/t for a contained 203,602oz, though the new producer sees Chariot as a stepping stone and is aiming to leverage off the substantial tenement holdings it has in the Tennant Creek gold province (which hosts Chariot) in the Northern Territory of Australia. “The Chariot deposit and Warrego mill provide the foundations for a profitable production base, and an array of … exploration targets suggest the success can be expanded and extended well into the longer term,” said Perth-based Macdonald. “Giants Reef is well placed to grow into the middle ranks of the Australian gold sector.”

Giants Reef shares closed steady today (Monday) at A$0.089, giving it a market capitalisation of A$65 million.