Castlemaine rises on the horizon to keep the rush going on...

Castlemaine rises on the horizon to keep the rush going on Victorian gold


Garimpeiro
August 18, 2008

IT REMAINS amazing that Victoria's goldfields have produced some 2% of all of the gold ever mined. It's not a bad stat given we didn't get going until 1851 and that the rush in production did not last all that long. Ever since, there has been the hope that some of the state's former golden glory can be recaptured.

But the renaissance of the industry has been taking one step back for every two taken forward in recent years, with the major players struggling to resurrect big-league production from the gold rush kings, the Ballarat and Bendigo goldfields.

But what of the Castlemaine goldfield, the state's third-biggest historic goldfield (5.6 million ounces), and under the control of Gary Scanlan's Castlemaine Goldfields (ASX: CGT)?

CGT has never attracted the sort of investor support that the Ballarat and Bendigo revivals have enjoyed over the years.

But with CGT on a pathway to getting a 2 million-ounce resource under its belt so it can start thinking about getting into production within 18 months or so, that could change, particularly as CGT was valued by the market at all of $12.4 million or a princely 8.5¢ a share on Friday.

Recent drilling on the Chewton deposit, 250 metres east of the old Wattle Gully mine on the Castlemaine goldfield, has outlined a stock exchange-compliant resource of 2.15 million tonnes grading 8.3 grams of gold a tonne for 574,000 ounces.

Add that to the remnant ore position back at Wattle Gully and CGT has some 686,000 ounces under its belt. It's been low-cost stuff to find, too, at about $4 an ounce. And given the extent of the Castlemaine field and the historical lack of deeper exploration, it should pretty much be a case of spend more and find more.

But like all junior companies, raising funds to continue the hunt will be a challenge in the current market. At last count, CGT held some $1.7 million and was forecasting expenditure of about $700,000 for the current quarter, so it has time to add to the story before coming back to the market.

Away from Castlemaine, the group's Tarnagulla gold project has come into its own thanks to a farm-out deal that demonstrates more than anything that while the market is tough with its Victorian gold valuations, others are more prepared to look at the bigger picture.

A group called Reef Gold Mines has agreed to earn a 20% interest in Tarnagulla by sole funding $2 million over the next 15 months. Reef can go on with it and earn a 75% interest by spending a total of $5.85 million, leaving CGT with a 25% stake that it has the right to sell to Reef for $3 million, along with a royalty it can also bounce to Reef for $500,000.
So the all-up value of deal is $9.35 million, which is some 75% of CGT's market cap. That's interesting given Tarnagulla, to the west of Bendigo, is a secondary asset for CGT. It also prompts the question as to what sort of farm-out deal CGT could secure on Castlemaine if it wanted to. And what do we know of Reef anyway?

Some digging around establishes that Reef is a Jersey Island-registered vehicle under the control of a single, typically wealthy and typically secretive individual. Tarnagulla is famous in Victorian gold circles for the Bonanza shoot on the Poverty reef that yielded mineralisation of three ounces a tonne back in the gold rush.

The hope of the secretive investor will be to find another shoot under cover and away from the historic operations. It is also a bet on the gold price. And on that score, it is worth noting that while the price of gold has tanked in recent weeks, so has the Australian dollar. As a result, the local price remains nice and strong at more than $900 an ounce - a situation that is somewhat lost on the equities market, where poor sentiment on

US-dollar gold prices has seen gold shares whacked.