Pinned straw:
Not necessarily a bear case and I acknowledge it's easy to be negative, but I am cautious with gold juniors and wary of ramp up risks.
I'll frame these as questions I'd need to have answers to if I were to hold an interest in the company. Hopefully those close to the company can shed some light.
Why the dramatic drop in head grade in the March quarter?
I understand rainfall but how much did they have and did it really impact the plan to this degree? The Meeka Airport Data indicates significantly lower rainfall than the long run average for the quarter, suggesting the site were pretty unlucky with localised event and/or access issues. Additionally, the potential impact seems to have caught the team off guard, as the weather events were not reported as a material impact at the time of the event.
The company hasn’t yet disclosed the stockpile grade or percentage of the feed material which leaves me uncertain regarding mining vs stockpile contribution. Prior reports indicate the strategy stockpiled 0.6g/t material alongside 1.6g/t stockpile material. Later reports only give the closing stockpiles as a total and average. Given they reported prior with stockpile and low grade, I assume these two sources are still available. On volume they could not have consumed the higher 1.6g/t stockpile and fed the 0.6g/t material, however, the quarterly result would make sense if there were circumstances that forced the feed of the 0.6g/t material.
An AI summary of stockpile movements assumes at 2.0-3.0 g/t feed before blending the 1.0g/t stockpile gives a potential ratio. Speculating heavily here. A cross section of the pit showing the grade that'll come back into Q4 would alleviate my concern.
How is the plan progressing as compared to the base "$1B FCF, NPV $616M, 180% IRR" plan that is quoted.
Is the AISC in line? The cash costs for the first half were much higher than the AISC shown on the presentations for the project. Whilst AISC backs out the ore inventory build, this will unwind somewhat with stockpile consumption. I also note AISC rising in December and broker notes are estimating this to continue for an average $2400/ounce for the year.
The company are clearly high grading throughput- which is expected to maximise FCF, so we could expect fluctuations in quarters if the open pit feed is not mining a high-grade block. Given this, are we likely to average closer to 1.6g/t until the UG feed comes online?
The ore sorting solution. This is framed well as a solution to debottleneck/unlock value of the throughput material. I find this an interesting area of focus when considering the relatively good grades from 1.8-3.4g/t reserve pits and 3.8g/t underground. Analysis uses a 3.2g/t Andy Well ore source essentially scaling the UG throughput grade by 85% by removing assumed dilution material.
Mill upgrade to 800ktpa- Stockpiles are building so it seems like a good business decision. But is it a necessity due to the FCF performance of the 600ktpa mill or pure upside on the existing project?
Andy Well Questions:
I'd like to better understand the history of Andy Well as the underground upside seems to be where the future value will come from. I followed Doray after Andy Well went into care and maintenance and recall AISC were extremely high but unsure of the reason why.
Conclusion
The latest announcement is softening expectations from investors, with the company is guiding towards September as the quarter to expect a greater proportion of higher-grade underground ore sources. Assuming they have a good June quarter, say 135kt @3.3g/t and 98% recoveries, they will land at 36koz for the year.
On my reading, the April update lowers confidence in the near-term ramp-up rather than breaking the project. The key issue is whether the March quarter was mainly a temporary ore-access problem or whether it exposed a more persistent grade blend/cost issue. Until the company gives better disclosure on stockpile mix, pit sequence and cost tracking versus the DFS, I think a cautious discount to headline project economics is warranted.
Ignoring the potential for the business to develop Andy Well as a cornerstone asset, a simple 5-year DCF, with capex factors from the broker note shared, returns around $0.23 (10% discount factor). Given risks taken, I think a 20% discount rate gives a margin of safety which lands around $0.16.
There’s solid discussion in this thread already thanks to @TommyCruise and @Bear77. I thought I'd have a dig also to try and work out what's going on. I think the missing piece is a clear operational explanation of what actually happened in the March quarter. The numbers only make sense when you look at sequencing, stockpile quality, and how the mill behaves when the feed changes.
1. The drop in head grade came from losing access to the higher‑grade parts of the pit.
Rain triggered the issue. The real cause was a lack of redundancy in the mine plan. When access to the Turnberry high‑grade benches slipped, the mill had to run lower‑grade oxide stockpiles. The feed grade fell sharply as a result. This is a sequencing issue, not a geology issue.
2. The change in stockpile reporting is the key warning sign.
Earlier reports separated high‑grade and low‑grade stockpiles. The latest reports only show a blended number. When a miner stops breaking out stockpiles, the blend is usually doing the heavy lifting. Without knowing how much 1.6 grams per tonne material versus 0.6 grams per tonne material went through the mill, it’s impossible to judge whether the quarter was a one‑off or whether the mine is now dependent on blending to hit the plan.
3. The cost behaviour shows the mill was pushed to protect ounces.
Costs rising while grade and recoveries fall is exactly what happens when the mill is run harder to compensate for lower feed quality. Throughput rises, recoveries fall, and the cost per ounce increases. This is not a metallurgical issue. This is a physics issue. The circuit is tuned for roughly three grams per tonne feed, not half of that.
4. Recoveries fell because the mill had to choose between speed and extraction.
Wet oxide, lower grade, more fines, and more clay all shorten the time the ore stays in the circuit. When the ore does not stay in the mill long enough, more metal ends up in the tailings. This is normal behaviour when the feed quality drops and the mill is pushed to maintain output.
5. The key cost metric here is “all‑in sustaining cost”.
This is the full cost of producing an ounce once you include everything required to keep the mine running at its current level. It includes mining, processing, site overheads, royalties, rehabilitation, and all development needed to sustain production. You can hide grade with blending. You can hide ounces with stockpiles. You cannot hide this number. It shows whether the operation is genuinely performing or simply holding the headline ounce number together.
6. The June quarter will reveal the truth.
If the plan is intact, June should show:
• access restored to the higher‑grade benches
• feed grade back toward three grams per tonne
• recoveries returning to the high ninety‑seven to ninety‑eight percent range
• costs falling as development spending normalises
• the first meaningful underground tonnes improving the blend
If June misses, the issue is deeper than weather and stockpile mix.
7. Andy Well is leverage, not a guarantee.
It performs well when the lodes are continuous and dilution is controlled. It performs poorly when they are not. It can improve the blend. It will not fix structural issues in the open pit.
Summary
The March quarter did not break the project. It exposed how tight the sequencing and stockpile strategy is. Until the company provides clearer disclosure on stockpile grades and pit sequencing, a discount to the headline plan is reasonable. June will show whether this was a temporary access issue or something more persistent.
Disc: don't hold, watching closely
I can't add anything much of value to your analysis @TommyCruise and I concur that around current prices is about right unless there is a material uplift in grades and tonnes of ore processed through the plant in the next few quarters.
You have probably (almost certainly) already considered the following, but I'll throw them in anyway:
- In Tim Davidson's comment on the quarter, which I'll repeat in a minute, moisture content in the ore obviously caused concerns, however that doesn't account for the reduced head grade: "While it was a frustrating quarter from a production perspective, we saw significant improvement in process plant throughput, a 37% quarter-on-quarter increase in tonnes processed. This was achieved despite the moisture content of the oxide ore processed often being above 15%, which impacted the processing team’s ability to further lift the plant throughput. We expect to see continued improvement in plant throughput as the mill feed transitions to increasingly fresh ore from underground over the coming quarters. We will also see the benefit of the higher-grade ore from the Turnberry Central and South pits feeding the plant in the June 2026 quarter due to the weather-related access delays in the March 2026 quarter."
- That last bit about weather impacting their ability to access their higher grade ore from their Turnberry open pits combined with the upcoming higher grade underground feed (from Andy Well UG) certainly suggests that higher grades are coming, however it doesn't entirely explain the extent of the head grade reduction in the March quarter.
- I'm assuming ASIC includes development costs, so I would expect that their costs are going to be higher now (or recently) when they have been mostly processing lower grade stockpiled ore while still spending money on developing AW UG.
- The 3% drop in recoveries in the March Qtr (vs Dec Qtr) - could that be due, at least partially, to the higher moisture content in that stockpiled ore that they were processing? I.e. can we reasonably expect them to return to 97% to 98% recoveries as per Sept and Dec Qtrs?
I'm a holder in my SPF (speculative company portfolio) and was intending to buy them in my ISA (income stream account) when it's up and running now that they're in the ASX300, however I might just leave them in my SPF for now. While they do have a decent 1.2Moz at 3g/t Au Mineral Resource (from both open-pit and underground mining operations), they are still ramping up, and have been since their first gold there in July, so it's been around 9 months, and such a head-grade decline at this point is certainly a concern. Not a thesis buster if the gold is still there, but I don't want them to turn into another Bellevue (terrible ramp-up with multiple CRs because their original mine plans were too ambitious and not achievable). So still holding, but watching closely. And my position is under $20K, not the higher value position it would be in my SMSF or ISA. Appropriately small for a higher risk junior.
So, I don't have any answers @TommyCruise but I do share some of your concerns.