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Subject: thrifty juniors cash in on mini-mines

Ten Bagger: Gold is the new black, as thriftyjuniors cash in on mini-mines

Mining

22 hours ago | Josh Chiat

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Welcome toTen-Bagger, where Lowell Resources Fund chief investment officer John Forwoodgives us his take on a sector of the ASX resources market full of value.

This month,John looks at how thrifty gold juniors are leveraging record prices to enterproduction early, generate quick cash and boost their share price.

It’s almost12 years since Orange is the New Black burst onto the scene and put Netflixinto pole position to become the world’s go-to TV producer.

We’ve sinceseen the streaming platform conquer the world of content slop before beingdragged back into the mudfight by legacy rivals and bored audiences.

And just aschaotically, in that time another mining cycle has come and gone. Led initiallyby gold, the old-timey precious metal gave way to booms first in iron ore andcoal and then in battery metals as bullion lost its lustre.

But as theenergy transition faded from the front of investors’ minds amid inflation, warand a cost-of-living crisis, gold made its return. In mining, if orange was thenew black, then gold is the new orange.

Rather thanbeing consigned to history as other stores of value (like the also flyingBitcoin) emerged to satiate the tastes of a new generation of investors,geopolitical instability, de-dollarisation and eventually interest rate cutsled the metal to fresh highs.

Now gold, atover US$2700/oz and close to $4400/oz Australian, is the flavour of the monthagain. And plateauing costs, a weak Aussie dollar and easing labour constraintsmean you don’t need to be big to make a dime.

“What we’reseeing, particularly in the WA Goldfields which is the best example in theworld, is 50,000oz deposits are the new million ounce deposit – Orange is theNew Black,” Lowell Resources Fund CIO John Forwood said.

“There arelots of companies with 50,000-100,000oz of gold in the ground in the WAGoldfields where they’re well positioned to realise cash from those deposits bygetting into production on a toll treatment-ore purchase basis.”

Poster children

There is noshortage of companies setting an example of how to make a bit of coin andincrease their attractiveness to shareholders by generating free cash in shortorder.

BrightstarResources (ASX:BTR) created a nest egg last year by partnering with contractor BML Ventures to mine and produce gold from the Selkirk JV utilising excess capacity at GenesisMinerals’ (ASX:GMD) Gwalia mill.

BTR, whichalso progressed an aggressive M&A strategy to grow its resource base to3Moz, doubled its value in the past year, with a market cap now of $230million.

Auric Mining(ASX:AWJ) shares are up 171% over the past year after the minnow decided to send its Jeffrey’s Find mine into production utilising BML as a mining partner. Toll treatment was provided by Peter Bartlett-backed FMR’s Greenfields Mill and Focus Minerals’(ASX:FML) Three Mile Hill plant in Coolgardie.

As of thecompany’s most recent update its stage 2 mine at Jeffrey’s has delivered14,853oz, generating $58.7m in sales and $6.6m in interim cash distributionsex-GST. Not bad for a project bought for $1.4m.

More cash isto come, with Auric aiming to process its next mine, the Munda project, itselfafter announcing the conditional acquisition for $4.4m of the 180,000tpaBurbanks Mill 9km south of Coolgardie.

“There’s abit of a disconnect where speculative companies have not seen the same joy fromthe market (as larger companies), but we have seen big share price gains forcompanies that are smaller but have been able to turn on gold productionquickly,” said Forwood.

READ: ASX gold minersare printing cash – who’s in line to join them in 2025?

For whom the toll bells

Tolltreatment and ore purchase deals are typically beneficial for both parties. Theplant owner can guarantee a margin without incurring mining costs, fill idlemilling capacity and blend ore to optimise feed for their plant infrastructure.

The supplierwill give up a margin to the processor, but can avoid the cost and executionrisk that comes with building your own mill, which often doesn’t stack upeconomically for a smaller resource with a short mine life.

If thehaulage distance is long, transport costs can hurt – often expressed byeuphemistically reducing the mined grade. But with diesel costs coming down andgold prices rising, longer trucking routes are becoming more tolerable.

“The fuelprice is pretty important, but the gold to oil ratio now is around 31:1 – 31barrels of oil to an ounce of gold,” Forwood said.

“The higherthat ratio goes the more options open up, and you don’t have to rely onnecessarily the closest mill.”

“So I thinksmall scale, short term production is going to be a growing theme. The IRRs forthese projects can be off the scale for the owners, with nil to very low capexand short times to cashflow.”

Who’s waiting in the wings?

Forwood seesplenty of candidates to join the growing cohort of producing gold companies onthe ASX, including some whose plans are not quite set in stone.

Among themis LefroyExploration (ASX:LEX).

Lefroygenerated some excitement a few years ago when it identified a low grade copperand gold porphyry with 500,000oz at Burns east of Kalgoorlie, and went on tobuy the historic Mt Martin gold and Goodyear nickel deposits from major FrancoNevada. It paid no upfront cash and only offered a royalty on production forthe latter.

But the runin gold prices has brought LEX’s smaller, but more advanced Lucky Strikedeposit – containing a resource of 1.27 Mt at 1.95 g/t Au for 79,600oz – to thefore.

Its signedits own 50-50 profit sharing agreement with BML.

“The contractminer puts up all the capex, which is generally pretty low to start the miningdepending on how big the pre-strip is,” Forwood explained.

“Then it’s a50-50 profit share from the surplus that comes out the other end of the tolltreatment agreement.

“Thesmaller-scale production is catalysed by the very high Australian dollar goldprice and Lefroy is probably a really positive story.”

Other minerswho have previously focused on larger discoveries in other commodities are alsolooking to follow suit.

DreadnoughtResources (ASXRE), whose geos won the AMEC Prospector of the Year Award in 2023 for the Yin rare earths discovery in WA’s Gascoyne, is looking to bring the high grade Star of Mangaroon resource into production after outlining a deposit containing 56,600t of ore at 12.8g/t for 23,300oz, 84% of it in the indicated category.

Once thelargest producing mine in the Gascoyne region, Dreadnought’s plans and resourcemodels at Star of Mangaroon don’t yet include the nearby Popeyes mine or hitsat depth below 110m, with underground mining having halted in 1983 just 90mbelow surface.

Forwood alsonoted Rumble Resources(ASX:RTR), which made the large Earaheedy zinc discovery near Wiluna in 2021.

Rumble hassigned a deal with India’s Bain Global Resources and its contractor MEGAResources which will see MEGA pay all establishment costs up to $25 millionupfront, opening the door to develop Rumble’s Western Queen South gold deposit.

An existingopen pit, Rumble wants to cutback the deposit to unlock a resource of ~1.42Mtat 1.59g/t for ~72,500oz. The JV will also consider the development of smallergold deposits at Duke and Princes once mine plans, toll treatment agreementsand a final investment decision have been made.