Capricorn Metals will be Australia’s newest gold producer in just a few weeks. The 100% owned Karlawinda Mine, south of Newman in the Pilbara will produce around 110koz of gold per year for at least the next decade at an average AISC of circa $1200/oz. The mine build is on time and on budget which has been a terrific achievement with all the logistical issues over the past 18 months.
Even for avid ASX gold watchers this company is likely to be a little (if not a lot) under the radar. This is because the company is not promotional and management have a philosophy of firstly demonstrating performance and then allowing the market to catch up rather than prematurely building expectation that needs to be lived up to.
In terms of share ownership it is a fairly tight register. Staff and management are large shareholders and there is some very loyal institutional support that has supported this team for decades. There is presently a modest short position in the company which could be problematic for its holder because it would take weeks to cover at current daily volumes. Accordingly, the short position is vulnerable to any price-sensitive positive news. There was a comprehensive turnover of board and management just under 2 years ago. Following the new structure the project was fast tracked through a debt/equity funding package and the mine scheduled for construction. The market cap has climbed from circa 60$M to the current $700M in that period.
Production will commence with modest debt of $50 million but operational net cash flow is well north of $100M per annum so the prospect of dividends might be a consideration in the not too distant future. There are large tenement holdings and Capricorn has demonstrated that it is interested in acquiring cornerstone shareholdings in neighbouring explorers as well as undertaking substantial regional exploration programs on its own ground. The ore body is very simple and mineralisation has been identified to much greater depths. It is clear that the orebody and resources will grow subject to gold price considerations.
In terms of valuation, as I mentioned there is no hype built into the current price of this company. Their profile will build after successful commissioning and I think the company also deserves a premium price on the strength of its management. I would add a 20% premium to a DCF based valuation because of the team’s demonstrated ability to replace ounces with exploration success and strategic acquisitions, and its history of building billion dollar companies out of one-deposit explorers. The management also has a high regard within the capital markets so they have significant leverage should corporate opportunities evolve.
Congratulations to the company for the upcoming significant milestone.
