Diggers and Dealers 2017 Report #68

August 14, 2017 | Dawes Points |

Key Points

  • Gold rally starting on cue
  • Expect ~100% upside in ASX.XGD over next 12 months
  • Australian Gold Industry excelling again
  • Gold production surging
  • Cashflows increasing
  • Dividends rising
  • Exploration success everywhere
  • Mines going deeper
  • Seasonal performance of XGD highlighted

Preferred stocksPremier Golds ASX.NST, ASX.EVN, ASX.TBR, ASX.RND, ASX.SAR, ASX.DCN, ASX.WGX, ASX.RRL, ASX.SBM, ASX.RSG, ASX.GOR.

Secondary Golds ASX.BLK, ASX.KIN, ASX.PNR, ASX.AUC, ASX.EGA, ASX.TNR.

Other resources ASX.MLX, ASX.MUS, ASX.FND, ASX.AMN, ASX.SFX, ASX.HRR.

 

Australian mining Industry, please take another bow!  What a performance there at Kalgoorlie this year.

For the Gold Sector, another year of production and resource growth and some outstanding brownfields `discoveries’ in WA’s goldfields.

And a year of some big operating cashflows rolling through that is boosting exploration, operating capex and paying some big cash dividends.

Other sectors like iron ore and copper are also doing well.

Diggers and Dealers is skilfully timed to catch the end of the Northern Hemisphere summer and the seasonal run in the gold price and the ASX Gold Index.

Ridiculous as it may sound, the world gold price usually manages to kick up on the Friday before Diggers to get the faithful aroused but gold decided to wait until the middle of the Gala Dinner after the conference closed on Wednesday to put on US$15 and set the XGD firing.  More gains (almost US$30) to test US$1300 came over the next couple of days.

As an unabashed bull of most things and almost everything gold Dawes Points considers the timing is pretty much on schedule.  Gold has shown clear seasonal strength after the Northern Hemisphere Summer and into the following February.


Source: Seasonax

And gold is just about ready to move much higher.   It may take a couple of weeks to back and fill and to whipsaw aggressive traders but a move through US$1,300 with appropriate retesting and consolidating should send it much higher later in 2017.

If Nth Korea is the issue, the buying pressure could get quite serious although the issue will probably be more bluster than bother.    Recall that the Sth Korean KOSPI Index has risen 20% in 2017 and seems to have been anticipating re unification and an end to that abominable repressive regime in the north.

But do not lose track of the bigger picture.

Rising living standards in Asia are driving demand for gold and the gold price.  Gold has moved from the West to Asia and a short squeeze is likely to develop.

Should gold break upward here to above US$1300 and begin moving higher then the 2011-2017 downtrend will have been broken!

Note that the move from US$246 to US$1,032 over 8 years was US$786 and to US$1,923 over 11 years was US$1,677.

These are just numbers but it always astounding how they will recur.

We have two important points to consider here from my perspective.

    1. If the US$1,032 is the intermediate high then there is US$600-700 to come quite quickly to take us to US$1,900-2,000.
      The run to from US$1,032 to US$1,923 with that US$891 gain is cream on the cake and could come again later as the next leg to almost US$3,000.
      This move would really show me the power of this bull market that is brewing in gold.

 

  1. However, if the US$1,923 is the intermediate high then, perversely, gold might `only’ get to US$1,923 then have considerable consolidation over a longer period and this market would not be quite as powerful.

Let’s just see.  And don’t be too dismissive.   A strong 11 year bull market rising US$1677 is to be respected.

A$ Gold price.

The recent strength in the A$ has been as expected and the A$ gold price has just clung on to its uptrend.  It has bounced nicely now and it on its way to the top of the uptrend channel.  The first target is up around A$2,000/oz.   The next channel projects much higher prices.

So let’s come back to the XGD and the seasonal influences.

The 2000-2011 bull market in XGD (note this was at least eleven years) rose 750%.

The very first upleg into 2002 of the 2000-2011 stage of the bull market had a 130% gain before its initial 27% ten month correction ahead of the longer term gains which included 72% over the next nine months.

The very first upleg in the current next stage of the bull market was up almost 230% in 22 months before its ten month correction (which has now finished after a similar 27% decline).

The XGD should be looking to at least test of the 8499 April 2011 high within the next 12 months.

Big call, but higher gold and a still very share price depressed but highly operationally and financially successful Australian gold industry could do it easily.

Note that the ASX.XGD has 27 companies which are almost ALL Australian based companies, not the 52 often foreign and often not gold producers in the XGD in 2011!!

Let’s hope S&P doesn’t repeat the previous idiocy with choice of stocks in the XGD.

NST has pointed out that there are only 20 mines producing 300kozpa or more in Tier 1 jurisdictions (Australia (8), USA(8) and Canada (4)) (+3 in Ghana) around the world and its Kalgoorlie and Jundee mines would soon add two more to these 20.

These ten Australian large mines should give Australia an extra quality boost and eventually an international premium.

Seasonally the XGD has kicked off after Diggers since the XGD was initiated in 2000.  Taking all 17 years we get an average gain of 8%.  Taking out the misery years of 2008, 2013 and 2014 gives a 14 year ‘adjusted’ average gain of 23%.

FY18 with all the current action couldn’t possibly be an average year so expect at least 23% in the December Half 2017 and more before June 2018.

Diggers and Dealers 2017

Another brilliant event after a brilliant year.

48 presentations and over 100 booths so a lot to see.

Starting with the Mining Company Awards let’s look at these:

Best deal

Gold Road (ASX.GOR and component of Dawes Points 1 Dec 2014, 1 Jan 2016 and 1 July 2017 Portfolios)   – Sold 50% of Gruyere 6moz discovery to new JV partner Goldfields for A$350m and is reinvesting into more Yamarna Belt exploration

St Barbara (ASX.SBM and component of Dawes Points 1 July 2017 portfolio + independent acquisition at A$0.21 in Feb 2015)  – brilliant recovery to A$3.77 through Gwalia mine producing 265koz @ 10.7g/t and repaying A$347m debt)

Kin Mining (ASX.KIN and component of Dawes Points 1 July 2017 portfolio)

Acquisition and rediscovery of Mertondale  (12km strike on Shear) and Cardinia Belts(~4km strike) with open down dip potential.

Fully deserved.

Other stars gave Kalgoorlie its renewed life and Australia is now entering a truly Golden Age as its (mostly) WA gold miners re examine old gold fields and push exploration and mining down to depths the rest of the mining world has considered normal for decades.  Don’t think 600m. Think more 1500m and as St Barbara is showing at the Gwalia Mine, 2600m and more.  And think higher grades. Try 10-15g/t.

Technology is assisting here with 2D and 3D seismic being adopted.

The WA industry is now pushing on strongly after the production decline that essentially left it out of the 2000-2011 bull market in gold.

This graphic may just be too conservative as well.

Kalgoorlie has again become the regional centre of attention.

                        Kalgoorlie Geological Terranes

To the west of Kalgoorlie, the Coolgardie Domain system incorporating the Zuleika and Kunannalling Shears is prime gold production real estate.  This domain extends from Kalgoorlie over 150km to Ora Banda.

This is giving us today’s The World’s Most Exciting Goldfield with Northern Star and Evolution utilising highly skilled teams to crack the codes to new and extended high grade deposits that have given us Tier 1 mines with >10 years life.

Both these stocks will be rerated as mine lives are bureaucratically confirmed. EKJV partners with NST, Tribune (ASX.TBR) and Rand (ASX.RND) should also more than double in the next year.

The evidence was there in front of us more than a year ago but some people are just a bit slow on the uptake.  Note too little ASX.TNR that has a very large footprint in this region.

This is now the fourth largest goldfield for Australia with production of about 420,000ozpa and growing.

Table   Major Australian Gold Mines  (current output kozpa)

Boddington 800
Big Pit 700
Cadia 620
Zuleika 420
Tanami 400
Telfer 366

This is a group effort and all players are likely to add to growing gold output over the next five years.

And the resource growth has also been spectacular for NST, TBR and RND as concentrated and committed exploration programmes have been running hard although EVN’s Phoenix acquisition is being reappraised after being severely reduced in 2016. Overall resources should be much higher for annual reviews by mid 2018.

NST spent ~A$18m on Zuleika exploration and has added a net 35% to resources to the East Kundana Joint Venture (EKJV) below.


Source: NST

And increased its 100% owned Kundana/Zuleika operations to 1.8moz with much more to come.


Source: NST

NST’s 100% operations will be rising to 175kozpa to give an overall net 300kozpa to NST during 2018.

Evolution is also now in full swing with 9 months of Zuleika exploration and its equally talented discovery team, whilst a few years behind NST, is finding extensions to its White Foil mine and also may have found down dip indications at Frog’s Leg and recent Innis target drilling has picked up the structure trending to the south east.  Zuleika Shear will take 50% of EVN’s FY18 exploration budget.


Source: Evolution

The Phoenix acquisition is being reappraised after early disappointment but the results are now coming through.

Keep watching for results from exploration further to the north at Blue Funnel, Emu and Burgundy. All the way up to Agnes at Ora Banda, to the north of the Zuleika Shear.

Blue Funnel has 7km of Zuleika Shear tenements and will be a major exploration focus for EVN.

Emu is providing some Zuleika Shear style grades and intersections along the Kunannalling Shear to show that much more is come from this World’s Most Exciting Goldfield.

Source: Evolution

This is just part of a major reassessment of the exploration potential of the Kalgoorlie region.

In just Evolution’s Coolgardie Domain drilling the historic records show a very modest % of drilling has exceeded 200m vertical depth.

Source: Evolution

Repeat this over the Yilgarn with an industry generating cash and many new players raising new equity.

And then all of WA and then the rest of Australia.

Source: Evolution

To the North and East of Kalgoorlie we have many more very interesting goldfields:-

St Barbara Mines ASX.SBM – 265kozpa from Gwalia at Leonora –

SBM expects to be mining this to depths beyond 2600mbs

Saracen  ASX.SAR – 300kozpa from operations near Laverton (Carosue Dam) and Leinster (Thunderbox)

Carosue Dam is 160-170kozpa.  Open at depth.

Thunderbox is 130-140kozpa and also open at depth.


ASX.NST’s 300kozpa Jundee Mine

The brilliant NST has repeated Zuleika at Jundee with a truly outstanding effort.

Resources have grown from 500koz on acquisition in July 2014 by 590% to 3.0moz with reserves up 350% to 1.4moz whilst output has exceeded 233kozpa with a 335kozpa rate achieved in June Qtr 2017.  Note that gold output over 2008-2010 exceeded 350kozpa (410koz in 2009) on much lower resources and reserves.


Source: NST

NST expects it will exceed 300kozpa here within 24 months through new mining faces and a plant expansion to 1.7mtpa.

A properly funded exploration programme at Jundee might have a major impact here.  Note that the upper zone in the green box down to 700m might just be repeated in the next 700m.


Source: NST

The Armada Trend is already showing continuation of mineralisation into the lower zone and the deeper Zodiac discovery of 4.8m @ 21.2g/t is very exciting.


Source: NST

Could NST find another 10moz in the next 700m?  Probably.

In another year it might be that Jundee becomes The World’s Most Exciting Goldfield.

WestGold ASX.WGX  Combining 5 goldfields and 5 mills for >400kozpa

Gold Road ASX.GOR  Yamarna Belt Exploration continuing after selling a 50% JV interest in the 6.2moz Gruyere deposit for A$350m to Gold fields Ltd.

Dacian Gold ASX.DCN  Completing construction of 2.5mtpa plant for >200kozpa

Regis  ASX.RRL  Duketon operations giving 350kozpa

Blackham ASX.BLK  Wiluna is still very attractive and BLK is very cheap

Pantoro  ASX.PNR   Expanding to 100kozpa

Kin Mining  ASX.KIN Mertondale and Cardinia Projects near Leonora

Special mentions

Resolute  ASX.RSG  With >300kozpa RSG is due a serious rerating again.


Metals X   ASX.MLX   Base Metals with excellent tin, copper and nickel operations

Agrimin  ASX.AMN  Lake Mackay Sulphate of Potash (SOP) Project   Excellent presentation

BHP Nickel West ASX.BHP Nickel sulphates for Nickel-Cobalt-Lithium-Graphite Batteries.  Interesting approach to managing your product for a changing market

Kirkland Lake TSX   Gold intersection of 15m @1421g/t for the >200ozpa Fosterville operating mine in Victoria

West African Resources   ASX.WAF  Sanbrado Gold Project Burkina Faso with high grade core zone of 245koz @ 34g/t.

Sheffield Resources ASX.SFX Minsands development project in WA

Mustang Resources ASX.MUS   Ruby producer in Mozambique

Egan Street Resources  ASX.EGA Redeveloping the Rothsay Gold Project

Finders Resources ASX.FND  SX-EW Copper mine in Indonesia on PER <2x from 25ktpa copper metal

Heron Resources ASX.HRR  Has Woodlawn Cu-Zn-Pb-Au-Ag resurrection financed (A$240m) and ready for production in FY19.

The Diggers and Dealers Forum does showcase Australia’s robust mining industry and the location in Kalgoorlie at the centre of gold mining never fails to impress with the entrepreneurial skills of the WA mining industry.

I own NST TBR TNR EVN MUS BLK PNR AUC GOR HRR or control in portfolios.

Barry Dawes BSc F AusIMM (CP) MSAFAA

 +61 2 9222 9111
bdawes@mpsecurities.com.au

Dawes Points #68
14 August 2017

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