30 Jan-2023: I'm a gold bull, but I'm bearish on this gold producer after reading their quarterly report (for the qtr ended 31-Dec-2022) which they released on Friday. Their SP dropped -24.68% to close at $0.29 on Friday on the back of that report - which you can read here: Calidus-Resources-Quarterly-Activities-Report-and-Quarterly-Cashflow-Report-Dec-2022-Qtr.PDF

They traded as low as 28 cents on the day, and as low as 27 cents/share today, and they closed at 28.5c/share (down another -1.72%) today on a day when the gold price was a little higher, the larger gold producers all rose (in SP terms), and the mid-cap and smaller gold producers were quite mixed (about half rose, about half fell, with WGX and RMS closing flat).

It's been a sorry share price chart over the past year.

From a high of $1.075 down to a low of 23 cents - and now trading at 28.5 cents/share. The main takeaways from their quarterly are that their grades remain low, their costs are very high, and they are having some trouble with their mining contractors (Macmahon - MAH) in terms of personnel availability (and therefore equipment availability) which would be contributing to their high costs - their guidance for H2 of FY2023 is for 31,000 – 36,000 ounces at an AISC of between A$2,000 and A$2,250 per ounce of gold produced. Not a huge profit margin there.

They repaid $5 million of their debt (Project Loan Facility) during the December Qtr - leaving a $102 million balance owing for their Warrawoona Project (plant) funding facility.

They have hit some decent grades at Blue Spec, and they are regarding the Felix drilling results (Felix sits alongside Blue Spec and they regard it as an extension of the Blue Spec deposit) as a "new gold discovery" - but it's 70km from Warrawoona (their gold processing plant) so would need to be firmed up and if economically viable to mine, trucked to Warrawoona.

Their best results from Felix are:

• 6m @ 40.15g/t Au from 38m in 22GORC016 (including 1m @ 220.17g/t Au from 39m);
• 41m @ 2.37 g/t Au from 32m in 22GORC009; and
• 7m @ 5.42g/t Au from 46m in 22GORC004.

However they say that the "bonanza-grade intercept" in hole 22GORC016 is located 25m below surface, which means a lot of pre-stripping to get to it.

Felix is 5km along strike from the 222koz (AuEq) @ 28g/t Blue Spec Gold Project, so that sounds great, however they are using Gold-Equivalent numbers there (AuEq) meaning there are other minerals there that they are also valuing and then converting them back to what they would be equivalent to if they were also gold. That of course means that the processing plant has to economically extract more than just gold to make those numbers stack up in reality.

I note that CAI's MD, David Reeves, purchased an additional 171,096 CAI shares @ an average price of 28.9 cents/share on Friday (on-market, when their share price tanked on the back of that quarterly report), so he shelled out almost $50K (about $49.5K) of his own money, which suggests he thought the selling was overdone.

And he could be right. However, if the gold price was to drop by a decent amount, CAI could become unprofitable quite quickly with an AISC of over $2K/ounce of gold produced. And there is opportunity cost. We've got larger and more diversified gold producers out there who are producing gold for a lot less and they are also producing a lot more gold, so they are clearly a LOT more profitable.

Of course, CAI have only just declared "Commercial Production" at their very first mine and processing plant, so they're the new kids on the block, with plenty of scope to improve their performance from here. However, it's a competitive space, the grades of gold in the ore that they are currently producing is less than 1 gram of gold per tonne of ore, and while they do claim to be cashflow positive, they have very high costs, and they clearly want to develop their other projects ASAP, starting with Blue Spec I imagine, which makes sense as it may well have higher grades of gold than what they are mining right now (the Klondyke Open Pit ore).

The following chart (from page 3 of Friday's quarterly report) is the main reason I am getting out of Calidus (CAI) tomorrow.

They have much higher gold grades in Klondyke UG than in Klondyke OP, yet the AISC is only expect to drop marginally with the addition of the underground mine development. While the gold grades will be higher, digging gold out from underground and transporting it to a surface mill is usually more expensive than open pit ore from alongside the mill. With the addition of Blue Spec (Stage 3), we do get a decent drop in costs, but the AISC (all-in sustaining cost) is still expected to be at least A$1,900/ounce of gold produced.

And you've got CMM (Capricorn Metals) who were the new kids on the block last year, and also only have one mine and one processing plant (Karlawinda, and CMM's Karlawinda and CAI's Warrawoona are both located in the Pilbara region of WA) reporting year-to-date (YTD) AISC of A$1,137 per ounce, and their Q2 AISC (for the Dec-22 Qtr) was A$1,105/oz, below the lower end of CMM's FY23 cost guidance of $1,160 to $1,260/oz. That's an FY23 AISC guidance mid-point for CMM (Capricorn) of $1,210, and their most recent AISC (for the Dec 2022 Qtr) was $105/oz LESS than that. Meanwhile CAI (Calidus) is HOPING to reduce their AISC from over $2,000/oz down to around $1,900/oz IF everything pans out as they hope it will from here (including the Klondyke UG development and the Blue Spec development).

I MAY look back in 5 years and wish I'd kept my CAI shares, but I highly doubt it, for two reasons. The first is that they were my smallest position IRL, and my third smallest here on SM (less than $1K invested), so even if they tripled in price the upside is pretty limited considering my tiny exposure to them, and (2) the second reason is that I am happy to forego potential capital gains if it means reducing the risk of permanent loss of capital, so I'm following a process that I'm happy with, and I'll be happy with the outcome of that process, regardless of what it is, because I've reduced my risk of losing the tiny amount of money I had invested in CAI because I'm going to move it into something with less risk and at least as much upside potential, if not more. I've learnt to respect and have faith in the process, regardless of the actual outcome. Because over time I will lose less and win more.

That risk/reward scenario clearly looks different from where David Reeves is sitting, hence him buying $50K of CAI on-market on Friday, but then again, there could be other factors at play there too, like their management STI and LTI hurdles, and whether they involve the SP levels or total shareholder returns (TSRs), but I'm not going to waste any time looking into that seeing as I'm exiting the company tomorrow. I'm sure David's buying helped put some sort of a floor under CAI on Friday, considering how small they are and how illiquid they are, but they still closed down -25% and then went on to drop another -1.7% today, so the market isn't thinking Friday was overdone, or not yet anyway.

Compare that to SBM, who dropped -21.35% on Wednesday with one of the worst quarterly reports I've read from an Australian gold producer for a long time, yet they rose +5% on Friday and then rose another +6.1% today. SBM are a lot bigger, they have a high-grade mine there in Gwalia (which still has decades of gold left in it), and the "merger" with Genesis (GMD) is going ahead, with GMD's Raleigh Finlayson set to takeover the top job at SBM, when it is renamed Hoover House (post merger) and the current management at SBM set to move across to Phoenician Metals, which will be the new company spun out of Hoover House that will hold everything that is not Leonora-related.

So regardless of how bad St Barbara (SBM) is travelling right now (and it ain't good), there is clear upside, with the team that built Saracen up to become Australia's 4th largest gold producer (pure play producer, so not including BHP, OZL or SFR) before they merged with NST (Australia's second largest gold producer) and then started building up Genesis Minerals (from scratch once again) set to takeover the management of the high-grade Gwalia UG gold mine, plus SBM's Leonora assets, plus GMD's Leonora assets, which of course includes the Dacian Gold Mt Morgan mill, the largest capacity gold mill in the Leonora area. And all current SBM shareholders should receive one Phoenician Metals share and one Hoover House share for every St Barbara (SBM) share they currently hold.

That's the upside. Hence the SBM recovery today and Friday from Wednesday's 70 cents/share low. SBM closed at 78 cents/share today, and they look cheap to me here, but I've been saying that for a while, since much higher levels. Sure, they've been a basket case, but they're NOT going broke, and there IS plenty of upside potential. However, CAI - they're a different kettle of sardines altogether.

Based on Gascoyne (GCY), Firefinch (FFX), Dacian (DCN), etc. these one-mine wanna-be gold miners are risky propositions, and some do indeed go into a trading halt and never trade again, which is that permanent capital loss that I'm worried about. Once they stop trading, you can't do a damn thing. You can't sell. You can't even write them off as a tax loss often for years until the administrators or receivors make the nescessary declaration that shareholders will not be receiving anything because there's no money left after all of the people further up the pecking order (like the ATO and the secured creditors) have all had their way.

CAI isn't at that stage of course. Nowhere near it. But that's one possible end-game that I consider here. And with their current costs and lack of serious cashflow, plus the money they want to spend developing their UG mine and Blue Spec, I can see a pathway from here to there (the wall). I hope they don't go down that path of course, but I'm not going to lose any sleep over it, because I'm selling out tomorrow. And I don't care much what I get for the shares either because once I decide to sell, I just sell. No use mucking around, especially if they keep going lower.

Further Reading:

Karlawinda Gold | Capricorn Metals (capmetals.com.au)

Warrawoona - Macmahon

Warrawoona Gold Project • Calidus Resources Limited

Meet Hoover House, the merger of St Barbara and Genesis (australianresourcesandinvestment.com.au)

Hoover House: Kerry Stokes-backed Genesis Minerals and St Barbara unveil gold merger (afr.com)

2022.12.12-asx-merger-of-st-barbara-and-genesis-to-form-hoover-house.pdf (stbarbara.com.au)

Genesis Minerals strikes $1 billion merger St Barbara to form Leonora play Hoover House | The West Australian

Quarterly Report Q2 FY23 (stbarbara.com.au)

Presentation on Q2 FY23 Quarterly Report and audio webcast (stbarbara.com.au)

December quarterly report and drilling update (genesisminerals.com.au)

gmd2023013001.pdf (genesisminerals.com.au) [Dacian Gold announcement: "Completing Transition to Explorer/Developer"]

Genesis Minerals Limited • Australian gold exploration and mine development

Analyst Reports • Genesis Minerals Limited

Home – St Barbara Limited

Broker Coverage – St Barbara Limited

Home | Capricorn Metals (capmetals.com.au)

Analyst Coverage | Capricorn Metals (capmetals.com.au)

Calidus Resources Limited • 1.5 MOZ high-grade resource progressing to development

ASX Announcements • Calidus Resources Limited

Company Presentations • Calidus Resources Limited

Company Reports • Calidus Resources Limited

Analyst Research • Calidus Resources Limited

17-May-2022 - CAI-Commissioning-of-Process-Plant-Successfully-Completed.PDF

Disclosure: CAI is in my SM portfolio here.

29-Mar-2021:  Warrawoona Construction and Pictorial Update

For more:  https://www.calidus.com.au/investors/   plus   https://www.calidus.com.au/

08-Mar-2021:  Key points are:

1. CAI are developing the 1.5 million ounce Warrawoona Gold Project in the East Pilbara district of Western Australia (not far from Port Hedland), with site works commencing last week:
   • Calidus has commenced bulk earthworks at the processing plant area;
   • Services infrastructure in place – access road, communications, water supply;
   • 240-person accommodation village on track to be completed in April; and
   • Project permitting completed with exception of Works Approval – due this quarter.
2. First gold pour is expected during H1 of (calendar year) 2022.
3. Warrawoona is expected to have an average production of 90kozpa at LOM AISC $1,290/oz over an initial 8-year mine life.
4. Macmahon Holdings (MAH) has been awarded preferred tenderer status for the open pit mining at Warrawoona and GR Engineering Services (GNG) was awarded preferred tenderer status for the site’s process plant EPC (engineer, procure, construct) contract.  MAH are probably the best gold mining contractors in Australia and GNG are the best gold processing plant EPC contractors in Australia.  LYL (Lycopodium) are also very good, but they tend to specialise in designing and building plants offshore in locations like West Africa and South America whereas GNG are the Australian EPC specialists.  [Disclosure: I hold MAH, GNG & LYL shares.]
5. 10.3% of CAI is owned by ALK (Alkane Resources), being a blocking stake, meaning nobody else can takeover CAI without ALK agreeing to it.  ALK can block any takeover attempt.  It also means that ALK may at some point attempt to takeover CAI themselves, although there are certainly no guarantees of that occurring.
6. Another 5.2% of CAI is held by their Board and Executives, including:

• Mr David Reeves, their MD (Managing Director) holding 17,992,440 CAI shares and 3m options;
• Mr Mark Anthony Connelly, their Board Chairman holding 626,786 shares and 200,000 options;
• Mr Keith Coughlan (NED) holding 944,000 shares and 200,000 options; and 
• John Ciganek (NED) holding no shares and 200,000 options.

Those 4 Board members together with their CFO, Richard Hill, their COO, Paul Brennan (formerly GM at Saracen), their Warrawoona General Manager, Don Russell and their Regional Exploration Manager and Chief Geologist, Steve Sheppard have a total of 100+ years of experience in precious metals project development - according to slide/page 5 of this February 2021 Presentation to the RIU Explorers Conference.

Features of the Warrawoona Gold Project:

• Simple large open pit and underground operation
• Conventional 2.0-2.5Mtpa CIL plant with 95% LOM recovery
• MRE (mineral resource estimation) of 1.5 Moz Au (1.7Moz including Blue Spec)
• 702koz Au Mining Inventory with low LOM strip ratio of 3.4x
• Average production of 90kozpa over 8 year LOM (life of mine)
• Increase production potential via high-grade Blue Spec Project bolt-on 
• Low pre-production CAPEX (capital expenditure) of A$116M
• ~A$1,290/oz AISC (all in sustaining cost) over life of mine
• Fully funded with A$110m debt, $42m cash (Dec 2020)
• 125koz gold hedged at A$2,355/oz - c.19% of total gold production
• After-tax NPV of $286m and IRR of 69% at A$2,500/oz gold price
• 13-month post-tax payback at A$2,500/oz Au

In summary, they look good, their SP peaked at 73 cps in October and their trading range today was between 39 cps and 41.5 cps (where they closed), so they're a lot cheaper now than they were 4 to 5 months ago, however they have to be regarded as speculative because they are explorers and project developers, and their first gold is not due to be poured until next year.  That said, if the risk/reward ratio looks suitable to you, then you could do a lot worse in the gold project exploration/development space than by taking a punt on CAI.  I do not personally hold them, but they're on one of my watchlists now. 

I personally mostly hold established and experienced gold producers, and the only explorers and/or developers I currently hold (who are not already producing gold) are BGL (bought today) and EMR.  I hold BGL for the high grades and low costs expected at their BGP (Bellevue Gold Project), and I hold EMR because of their highly credentialled and experienced management and board - and their prior track record, and their great business case/fundamentals - 907,000 ounce gold reserve at US$754/ounce AISC (at US$1,450 gold price), high IRR of 95% (at a US$1,700 gold price), and that they are fully funded with additional contingency - although I have to say EMR is well outside my comfort zone witth their Okvau gold project being located in Cambodia.  It does give me some comfort however that they have signed a Mineral Investment Agreement with The Royal Government of Cambodia, and that the Government is very supportive of the mine, and that EMR have signed up MACA (MLD) as the contract miners for Okvau.  After MAH (Macmahon), I consider MLD (MACA) to be our (ASX-listed) second best listed contract mining company to the gold sector.  I consider NRW Holdings (NWH, I hold shares in them also) to be the third best, but NRW are a lot more diversified, whereas MLD & MAH are definitely gold mining specialists.  MLD currently do contract gold mining for all of Regis Resources' (RRL's) OP (open pit) gold mines, plus at Gruyere (for Gold Road and Gold Fields), Matilda (WMX), Mt Magnet and Edna May (both RMS), and they've recently also been awarded the mining contract for Karlawinda (CMM).  MAH currently mine gold at Tropicana (OP) and Boston Shaker (UG) (Underground) (for IGO & AGG), Telfer (NCM), Mount Morgans (DCN), Mount Monger and Deflector (both SLR), and they have a massive copper/gold mining contract at Batu Hijau for AMNT (who own 44.3% of MAH).  MAH have also recently been awarded the gold mining contracts for Bellevue (BGL) and for Gwalia (SBM).