WA’s aspiring gold producers are navigating new challenges to firm up discoveries.
DE Grey Mining managing director Glenn Jardine carries himself with an assured countenance.
Perhaps it’s warranted, given the company he leads is sitting on what it believes is one of the largest undeveloped gold deposits in Australia.
The 1,500 square kilometre Mallina project in the Pilbara contains the Hemi deposit, De Grey’s famed discovery confirmed in 2020, which sparked a wave of nearology plays seeking to secure a piece of the area’s projected wealth.
According to a mineral resource update posted in May, Hemi is believed to contain 8.5 million ounces of gold within a broader 10.6 million ounces when including regional tenements.
Ahead of a pre-feasibility study for the project due in September, Mr Jardine said sentiment within the team was positive.
“It’s pretty hard not to be,” he said.
“We’ve announced probably one of the largest maiden gold resources in Australian history and then we’ve kept growing it.”
Mr Jardine said exploration at the project would run concurrently while it pushed ahead with a pathway to production.
“Hemi is just a two-year-old discovery,” he said, putting Hemi’s timeline in context of established mining regions.
“When you put that into the context of, say, the Yilgarn or say the Goldfields where you’ve got these quite mature exploration areas … you can see what the growth has been in terms of Yilgarn gold endowment.
“We’re just at the start of that journey, so we have very high confidence that we’re going to discover a lot more.
Contrary to widely reported labour and equipment shortages, Mr Jardine indicated there had been few issues getting boots on the ground at Mallina.
“We are seeing the opposite,” Mr Jardine told Business News.
“Because of the quality of the project, we’re seeing mining contracting companies being very interested in what we’re doing, equipment suppliers being very keen to work with us on long-lead-time items.”
Initial studies for Mallina have it producing approximately 473,000 ounces per annum for the first five years of operation, costing around $835 million for plant and site infrastructure.
Though investors will need to wait until September to see what, if any, extent inflationary effects have had on previous estimates.
Mr Jardine said these factors were being considered in the pre-feasibility evaluation.
“We’re looking at what the influences are right now on those capital cost estimates and then also having a look forward and seeing what sort of macroeconomic environment might apply in, say, two years’ time when we were going to be right into the intense part of construction,” he said.
Post-rush
Gold has long been considered a safe-haven commodity to which investors flee during times of global uncertainty, but base demand for the metal more generally comes from more diverse sources.
“Gold has a number of different sources of demand and in the past 15 years it’s been China, Russia and central banks from developing countries,” Argonaut director metals and mining research John Macdonald told Business News.
“The picture that seems to be emerging is China and to a lesser extent Russia and India are the base demand, and they’re almost always there.
“It has been only when certain events happen that we get the exchange traded funds come in, so the Western demand comes in as a price setter.
“We get a few indications that it’s [demand] been strong but really we’re just following the price.”
The US gold price after Russia invaded Ukraine provides a classic example of the commodity’s safe-haven credentials.
Spot prices hit around $US2,049/ oz in early March in the week after the invasion, pushing gold to prices not seen since August 2020.
Though referencing the Ukraine-triggered rally, Mr Macdonald indicated it was rooted in both a commodity and investment narrative.
He attributed this in part to insecurity about Russian production not being available to Western countries.
“[Gold] sometimes extricates itself and becomes a financial thing rather than a commodity,” Mr Macdonald said.
“But a lot of the time it does get wrapped up into commodities, and that was certainly one time where gold hitched a ride on the commodity story.”
While gold prices remain somewhat elevated on a broader timeline, ongoing geopolitical risk has not been a guarantee in terms of sustaining high prices.
An ounce of gold was worth about $US1,760 in mid-July.
The drop-off has been broadly attributed to the strong US dollar, according to Mr Macdonald.
“If we go to the flipside of that, if the US dollar starts coming off again, you expect gold to recover pretty quickly, as you would with most commodities,” he said.
Local impact
Australia’s weaker equity market has prompted questions around most commodities in recent months, gold included.
“We’ve seen, rather unusually, a reduction in the US dollar price of gold, particularly in the last two months,” Mr Jardine said.
“So that’s had a negative impact on gold stocks on top of the negative market sentiment around equities.
De Grey shares changed hands at around $1.40 in mid-March but have nearly halved since to trade in the high 70 cents range.
“But in the medium term, the outlook for the gold price should be positive because when real interest rates are negative it’s a good thing for the gold price,” Mr Jardine said.
It’s believed a higher interest rate environment might steer investors towards cash instead of gold, but Mr Jardine suggested this wasn’t always the case.
“If there’s overriding macroeconomic or geopolitical instability, that will trump a modest increase in interest rates,” he said.
Medallion Metals managing director Paul Bennett, whose company owns a namesake gold project in Ravensthorpe, said news of a major mineral resource upgrade emerged at a difficult time in the market.
The company posted a 79 per cent resource upgrade at the Kundip Mining Centre, which falls within the broader Ravensthorpe area, to 1.37 million ounces grading 2.6 grams per tonne gold equivalent.
“We increased the metal content by 80 per cent, the grade went up so and we maintained a significant level of resource in the indicator category, so 67 per cent, a really good outcome,” Mr Bennett said.
“But the timing was awful; we almost caught the market the day it went risk off.
Medallion shares traded near 28 cents in early June and are currently at about 20 cents.
Mr Bennett said getting equipment to site hadn’t been an issue at the project.
“Drill rig availability has been fine; we’ve got large programs in a pretty favourable jurisdiction, so the drillers are always willing to come down and do the job for us,” he said.
He conceded the company had run into its fair share of staffing issues in the past 12 months but had since established a solid team.
“We’ve got a stable team down there now, but it’s taken us 12 months to really bed that down,” Mr Bennett told Business News, adding that field technicians were particularly hard to come by.
“But I think we’ve been fortunate in that we kind of sit in the sweet spot.
“They [workers] know they can get that educated and informed risk on Medallion and then they know, if for whatever reason things don’t work out, they can probably flop back into the more established companies.”
Mr Bennett said the company had also offered an incentive program to attract workers.
He said now was a good time to be in the resource-building stage with Medallion managing to avoid inflationary pressures thus far.
“If we were building the project, different story, but just in terms of getting the drilling done … it’s great to be in this resource-building phase,” he said.
“It’s just the fuel inputs that are up on us, but everything else is manageable so far.
“We’ll be absolutely ready to catch the wave when it gets going again, on the other side of this strong US dollar.”
For West Perth-based explorer Black Cat Syndicate, tight labour conditions prompted it to delay construction of a 56,000 ounces per annum operation at its flagship Kal East project in Kalgoorlie.
The project started as an 80 square kilometre project at Bulong, which Black Cat managing director Gareth Solly said the company had built into a resource of 1.29 million ounces.
But he said conditions in WA had made it hard to construct a project from the ground up.
“Although we were doing all the engineering and looking at how we get that build, we knew there was going to be issues around labour supply because COVID had been with us for a couple of years,” Mr Solly told Business News.
“There’s just no labour around, there’s no accommodation in Kalgoorlie, so it’s very difficult to pull together the size workforce needed to build something.”
However, Mr Solly said Black Cat would remain busy in the interim with two non-core assets formerly owned by Northern Star Resources.
Black Cat acquired the Coyote gold operation in the Tanami Desert and the Paulsens project in Ashburton, which are both on care and maintenance, in a cash-and-scrip transaction valued at $44.5 million in April.
Mr Solly said both projects had mill facilities and established infrastructure, which would require fewer people and less capital to build.
“At the moment we’re drilling Coyote and Paulsens will be drilling there in September,” he said.
“We’re also assessing the infrastructure and the mills and the refurbishment costs associated with each of those.
“Once we’ve done that work over the next couple of months, we’ll be able to commence the plan on which will likely restart first.”
Capital competition
Argonaut’s Mr Macdonald said one of the biggest likely challenges for aspiring gold producers, and those of other commodities, was weaker equity markets.
“The gold price has held up okay, but equity markets have slipped away quite sharply. The availability of capital is a lot harder to come by,” he said.
Medallion’s Mr Bennett concurred.
“Gold exploration in WA is a crowded space; we’re competing for capital and attention with dozens of other gold or predevelopment gold stories,” Mr Bennett said.
But he said the broader investment community had started to pay more attention to the company since the project hit its recent resource milestone.
“Now that we’re in excess of one million ounces of gold at good grade, we screen really well in the peer group,” Mr Bennett said.
Mr Solly agreed it was a difficult time to be raising capital but said his business didn’t need to go back to investors for the foreseeable future.
“That is a good thing, because the markets aren’t the best at the moment for anyone raising capital,” he said.
“Saying that, I think there’s always money for good stories.”
Mr Jardine was confident investor interest would be there for De Grey if, and when, its $97 million in the bank started to dwindle.
“Because of the quality of the project we know that there is a lot of interest in investing, so that’s positive,” Mr Jardine said.
