Gold strikes at Diggers & Dealers

PORTFOLIO POINT: The gold price is heading up, and global demand for bullion is on the rise. All that adds up to one thing … the gold rush is back on.

Earlier this week, Tim Treadgold commented in his article Rushing to gold that gold is back on the buy list.

While the general mood at this year’s Diggers & Dealers has been decidedly down on previous years, it seems that there have been plenty of gold stories around.

Andrew Shearer, mining analyst at Octa Phillips Securities, has been on the ground in Kalgoorlie this week, and has been tuning in to the best gold stories on offer. Here is an edited version of his daily bulletin on the most interesting gold prospects that presented at the Diggers & Dealers conference.

Beadell Resources (BDR) – Market Cap $460m

“Production starting in October 2012 from its gold mine in northern Brazil, targeting 150-180k ounces per annum at a cash cost of US$580oz. Reductions in the cash cost to US$375-$425/oz possible with the inclusion of revenue from the sale of iron ore and iron ore concentrate. The iron ore is associated with the gold mineralisation, and BDR is currently negotiating sales agreements with Anglo Ferrous, who operate an iron mine close by. A cash cost of about $400/oz would put BDR in the lower cost quartile of gold producers. Current resources are 4.3 million ounces (Moz), targeting 7.0Moz. Current reserves 1.25Moz, significant upgrade expected in 2 to 4 weeks. On current reserves/resources a mine life of 10 years is possible, increases in reserves will led to extensions to the mine life.”

Northern Star Resources – Market Cap $390m

“Currently producing at 75-80 thousand ounces (Koz) gold pa with 100koz run rate targeted from early CY13, on current mining rates mine life is about five years. Exploration potential high within close proximity to current mine resources, additional upside from Ashburton project (1.0Moz resource). Cash and bullion of $75 million, zero debt, maiden dividend announced, (2.5c/share Fully Franked).

“Paulsens Mine – Pre Diggers we attended a site visit to Northern Star’s Paulsens Mine, currently producing 75-80koz pa gold. The last time I looked at Paulson’s Mine it was owned by Intrepid (IAU) and was a limited life operation with only ~100koz in resources. My site visit has shown us that the mine with a resource of 403Koz now has at least five year’s mine life and plenty of upside.

“NST has taken a new approach to both exploration and mining and as result have made new high grade discoveries, extending the mine life. The rejuvenation of a mature operation draws analogies with what Silver Lake (SLR) did after purchasing the Daisy Milano operation from Perilya (PEM). I would see NST as where SLR were around 18 months ago. Current cash cost US$650/oz FY12, FY13 guidance US$610-$690/oz. Cost will depend of final head grade. The current head grade is 7.0 grams per tonne (g/t) and the new ore bodies to be brought on line in the 2013 have a head grade forecast at 8-9g/t.”

ABM Resources (ABU)

“Market Cap. About $120 million, cash $23 million. ABU is a Northern Territory focussed gold company with 3.3Moz in resources and a new high grade discovery at Old Pirate.

“Since acquiring an extensive land package from Tanami Gold and Newmont in ‘09/’10 ABU has done a good job in delineating a sizeable resource and making several new discoveries. A scoping study was completed earlier this year on the high grade Old Pirate deposit ((427koz Au @ 7.95 g/t gold). The scoping study highlighted a profitable short mine life operation with nominal capex of $27 million.

“Additional drilling since the scoping study is likely to significantly increase the resource at Old Pirate.

What we like about the potential operation is the high grade, on an uncut basis the resource grade increases to 10.5g/t. The implication from this is that any potential plant would need to be relatively small (300-400ktpa capacity), similar to the NST mill at Paulsens. Low grade ore requires a large plant ( 1 – 2Mtpa) and more expensive plant  to economically treat the ore.

“In addition to the existing deposits ABU is actively exploring their extensive land holding in the region.”

Independence Group (IGO)

“Market Cap $729m, cash $192 million, debt $24 million, hedge book $23 million, interim divided (March ’12) 2.0c. IGO is an emerging gold story with a solid nickel production base, the share price slump is largely in response to the current nickel market. Even with nickel prices in the doldrums IGO has maintained a healthy margin on production and paid dividends. What was new in this year’s presentation was the focus on Tropicana and also the strong pipeline of projects that IGO has developed.”

Tropicana Gold (IGO 30%, Anglo Gold Ashanti 70%)

“Resources 6.4moz, Reserves 3.9Moz (AGO attributable 1.9Moz/1.2Moz). Project construction 50% complete with first gold production expected December Qtr 2013. Production attributable to IGO years 1-3 141-147koz gold pa. Capital costs $775m, LOM Cash cost $730/oz, including working capital and royalties.

“The potential is high for increases on the current resources and reserves as drilling under the current ore bodies and along strike has intersected mineralisation.”

Karlawinda Gold Project (IGO 100%)

“Located on the southern edge of the Pilbara region WA. A resource increase was announced in June to 674Koz gold. The project remains in the early stages of exploration(Scoping study under way) but adds depth to IGO’s project pipeline.”