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No Jaundice Apparent Just Yet for the Yellow Metal

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2023-04-14

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April is turning out for be a ‘golden’ month for gold miners with global prices staying well above $US2,000 an ounce and Australian prices keeping above the $A3,000 level.

The sustainability of those elevated prices remains in question and has everything to do with inflation, fears of a recession and interest rates levels - especially those set by the US Federal Reserve.

It has very little to do with the current supply/demand factors (except the strong buying by central banks), but if investors and miners start to think that prices could remain above $US1,900 -$US2,000 an ounce for a while longer, then that will provide a lot of encouragement for existing and wannabe local gold explorers and miners.

And the stronger price outlook will add an extra shine to existing mining plans and future expansions programs.

Take Gold Road which is no doubt looking a little more comfortably at its ambitions for future growth at its 50% owned Gruyere gold mine in WA. The shares are around $1.88 or so and have jumped more than 23% in the past month.

While Gold Road has hopes for better future prospects for the Gruyere mine (the other 50% is owned by Gold Fields) it now thinks it will have a much longer life past its existing 2032 cut-off date.

Gold Road says an updated 3‐Year mine production outlook for Gruyere had been completed, but that the outlook past 2032 looks better with a major, multimillion-ounce resource outlined under the existing planned mining zone.

"The Gruyere JV has completed feasibility level studies on the seven‐stage Gruyere pit design, including metallurgical and geotechnical studies that underpin the Life‐of‐Mine until 2032, Gold Road told the ASX in a statement.

"Additionally, the Gruyere JV is at an advanced stage of tendering a mining contract, with several industry leading contractors submitting competitive bids. The current contract concludes in the March 2024 quarter.

This updated outlook – for the calendar years 2023, 2024 and 2025 – replaces the last published 3‐Year outlook, which ran up to and including 2023.

"Over the past three years, production at Gruyere has improved as a result of increased plant throughput and higher grades. Enhancements to production have been driven by continuous improvement and required little additional sustaining capital expenditure and negligible growth capital expenditure,” Gold Road said in its ASX release.

In the statement to the ASX, Gold Road outlined ambitious plans for Gruyere that are dominated by forecasts for a sustainable boost to output for the next three and seven years.

The plan says Gruyere’s 3‐year production outlook ranges between 335,000 and 375,000 ounces a year (on 100% basis).

Gold Road said it sees production increasing on prior years, "due to higher head grades and improved throughput following commissioning of a third pebble crusher in late 2023.”

"The production outlook requires minimal growth capital. and Gold Road said the expected All in Sustaining Cost (AISC) outlook "continues to offer strong margins at current spot gold prices.”

Gold Road said the outlook for 2032 sees "Sustainable production at around350,000 ounces per annum rate to 2032 through a seven‐stage mine plan.

"Feasibility level studies for the Golden Highway resources are scheduled for 2023, in preparation for mining, which is anticipated to commence in early 2026."

But on top of this, Gold Road says there is life for the mine beyond 2032.

"With over 3 million ounces of mineral resources defined beneath the Gruyere Ore Reserve and the orebody intersected in drilling down to 1 kilometre below surface, Gold Road sees an opportunity to extend Gruyere’s mine life beyond 2032.

"This will be the subject of a study at an appropriate future date,” Gold Road said.

"Gruyere celebrated its one‐millionth ounce of gold production on 3 April 2023 and with a "strong production outlook, Gruyere is set to deliver 2 million ounces during 2025”

Once Gruyere has produced 2 million ounces, Gold Road said it will receive a 1.5% net smelter return royalty from Gold Fields on its 50% share of production. This is in addition to Gold Road’s 50% share of ongoing gold production.

Gold Road also has a 20% stake in De Grey Mining and its world class Mallina-Hemi gold prospect in the Pilbara which is expected to reveal updated work on a mining plan and reserves later in the year.

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World prices above $US2,000 an ounce will obviously be appreciated by global giants like Newcrest’s suitor, Newmont (with a higher offer for Newcrest under its belt), by Barrick, Agnico Eagle and Gold Fields.

But it's the impact on the Aussie dollar price for gold (and silver for that matter) that is bringing a smile to the faces of gold management and a sheen to their revenue and profit lines.

Miners like Evolution, Northern Star, Red 5, Gold Road, Alkane and Genesis Minerals will appreciate the higher $A pricing for gold for as long as it lasts.

The past week has seen the start of updates from local gold miners on production and cash positions ahead of their complete quarterlies later this month.

Take Alkane and its nice little Tomingley mine out in the middle of the rapidly emerging gold copper belt of central western NSW.

Alkane said Tomingley remains on track to meet the upper end of 2022-23 guidance of 62,000 to 70,000 ounces after producing 16,641 ounces in the March quarter.

That took nine-month production to 54,431 ounces and easily in sight of the top end of guidance.

Alkane said as well as the maintained guidance, its AISC is also unchanged at $A1,550 to $A1,800 per ounce. That could be up to 16% higher than the 2021-22 figure of $A1,460 an ounce.

The average price for the half year to December was $A2,582 (and $A2476 for 2021-22).

A lift to more than $2,600 an ounce this quarter and more, if the Aussie dollar price remains around $A3,000 an ounce could boost Alkane’s gross margin well above $A1,000 an ounce instead of the $A700 or that it was looking like earlier this year.

And that gives a clue about the impact gold at $A3,000 an ounce could have on Alkane and many of other miners.

Alkane CEO Nic Earner said in a statement to the ASX that: “Tomingley is performing well and remains on track to meet full-year guidance.

"With approval received in February to extend the life of Tomingley, at increased production rates, we’re progressing the development of the Roswell underground ready for ore production before the end of the calendar year.”

Alkane’s unaudited cash, bullion and listed investments position at March 31, 2023, totalled $A117.2 million

That’s more than enough to keep paying for its growing exploration bill for its emerging three Boda and nearby Kaiser copper gold prospects near Tomingley.

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Red 5 said it saw record gold production on its King of the Hills gold mine (KOTH), located in the Eastern Goldfields region of Western Australia.

King of the Hills is one of the newest mines in the country, coming on stream last year, and is rapidly building up to maximum output levels.

Red 5 said King of the Hills produced 17,550 ounces of gold in March which took total output for the quarter to 40,867 ounces, compared to 36,260 ounces in the December 2022 quarter

“The KOTH underground mine had its strongest month to date in March, with a significant lift in productivity,” Red 5 said in its operational update to the ASX.

Red 5 said June half year production guidance is maintained at 90,000 – 105,000 ounces at an AISC of $$1,750 – $A1,950 per ounce. That should start easing as the higher productivity kicks in and more ounces are produced.

Because the mine is new, its AISC level is still settling and the average price doesn’t matter as much for the purposes of comparison. Red 5 did not give an average price per ounce for the December half year.

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