Qtr Result:

• 82,604oz produced at Gruyere (100% basis), up from 74,201 last Qtr
• AISC of A$1,399/oz, down from A$1,622 last Qtr
• Net cash $127.9m, A$150m undrawn debt facility (almost all is DEG)
• listed investments value A$480m at market 31/3
• 41,818oz sold (50% basis) at average price of A$2,764/oz Vs 37,295 @ A$2,476 last qtr.

Gruyere Outlook 2023 (100%):

• 340-370koz with grade increasing to 1.3g/t Au (from 1.15)
• Indices that average qlty production for the remainder of the year will be up to 90,799oz at the midpoint, so 10% up on Q1 for remaining quarters.
• AISC guidance A$1,540-1,660/oz.

Valuation: In line with current expectations so maintain base valuation of A$1.55 with a healthy Bull-Bear range of 2.44-0.98 and probable trim or sell over $2.

Disc: I own

Just a confirmation and small upgrade on Gruyere mine announced this morning:

·        Production range of 335-375k ozpa (100%), increase on prior years due to higher head grades and improved throughput (third pebble crusher added late 2023).

·        Requires minimal growth capital

·        Sustainable production at 350k ozpa reaffirmed to 2032

·        >1m oz mineral resource defined, opportunity to extend mine beyond 2032

The gold price now over US$2,000 is more likely to move the price today than this news.

Disc: I own

(31/3/23)

Reviewing my valuation taking into account the results released this month and considering the currently high A$ gold price and AISC which basically net off. As such I have not changed my valuation from around A$1.50 and view that it’s a trim or sell at $2.00 or more.

Valuation Adjustments:

·        Listed Assets from DGO Gold take over: provided at 14.4% holding in De Grey Mining (DEG) which has been increased to 19.73% (308m shares, market value $460m). They own the Hemi gold project in the Pilbara which has similar characteristics to Gruyere. Other entities they have an interested in amount to less than $10m in market value (GMD, YRL, S3N). In total I have added A$467m to the EV to allow for this but the share dilution offsets it.

·        Net Cash of A$74m - Debt free with a 150m facility undrawn.

·        Unhedged as of Nov22 so full exposure to gold price. 

·        FY23 forecast production (attributable) 170-185koz at A$1,540-1,660 AISC. I have assumed 170koz at $1,660 AISC, they came in on the unfavorable side of range guidance for FY22 so I am taking worst in range to add some margin of safety.

·        Gold price: Currently below A$3000/oz, I am assuming that the US$ gold price will rise but be partially offset by a rise in the A$ so allowed for a 4% a year appreciation in A$ gold prices. Below is a valuation table for variance in the A$ price from combined FX and US$ gold price moves.

I continue to assume a terminal value on the basis that current production will be replaced indefinitely, with exploration & allowance for development costs included in the valuation. There is probably some upside opportunity from all the current projects, but I will value it if and when it is more tangible.

It’s the only gold stock I own, so is my toe in the water for a spike in gold prices…

Disc: I own

GOR takeover of DGO Gold (4/4/22)

GOR announced today the off market takeover of DGO Gold (DGO) in an all script offer of 2.16 GOR shares for each DGO share or around $3.55 a share (A$308m). DGO is currently at $3.00 but has been as high as $3.90 in the last year.

DGO assets include listed holding with a market value of A$273m (14.4% DEG, 6.8% DCN, 20.1% YRL) and “an attractive portfolio of exploration tenements in the Pilbara, Yilgarn, Bryah and Stuart Shelf Provinces”. 

The price looks to be ballpark reasonable, also as a script offer the large cash balance remains intact providing support to future dividends. However, on a shareholder value basis the dilution may be more costly over the long term.

The DGO board supports the offer and 80% of shareholder support is needed for the deal to proceed.

The GOR board have been hunting acquisitions, so this is no surprise, they fell short on offers for 2 last year so appear to be reasonably conservative on pricing to protect shareholder value.  The expansion of it’s holdings in both exploration assets and production assets is making GOR more complex from a valuation prospective which will lead to a discount on the market.

Having just updated my valuation I am not making any changes given the acquisition price seems around fair value.

Gold-Road-Makes-Recommended-Takeover-for-DGO-Gold.PDF

Disc: I own GOR

Processing interruptions during the year impacted the result, reducing production and driving up AISC to produce a poor result compared to the prior year. Exploration outcomes extending the Gruyere mine (50% attributable) for 2 years and a 70% increase in 100% attributed deposits were the bright spots. Gold prices have improved and the A$ remained relatively stable to provide a favorable position for GOR in FY22 assuming no further production issues.

Highlights:

·        NPAT A$36.8m Vs A$80.8m LY, EBITDA A$120.2m Vs A$170.6m LY,

·        0.5c fully franked final dividend (Vs 1.5c LY), Cash of A$131.5m Vs A$126.4m LY

·        Production of 246.5k oz was below revised guidance of 250-260k, and last year’s 258.2k oz production due to process plant interruptions

·        Guidance for 350k oz production by 2023 (100% basis) remains.

·        AISC of A$1,558 /oz was above revised guidance of A$1,425-1,525 and last years A$1,273 due to lower throughput from interruptions to processing and lower plant utilisation.

·        JV Ore Reserve up 28% YoY to 4.45m ounces (109.1m tonnes at 1.27g/t Au), Gruyere’s mine life extended out to at least 2032 (2030 previously)

·        100% owned Mineral Resources increase by 70% to 6.4m tonnes at 2.44g/t for 0.51m ounces via exploration projects.

·        No Inorganic growth due to being outbid on 2 offers during the year.

·        2022 Guidance: 300-340oz production (100% basis), AISC between A$1,270-1,470/oz due to improved grades being mined, improved mill optimisation and maintenance practices as well as state boarder openings not materially changing the current production and costs environment.

Opportunities/Risks

·        Processing interruptions at Gruyere really hit the year hard, provided these are behind GOR then FY22 should be as good or better than FY20 was.

·        Inflation impacts on costs is a risk to bringing AISC down and I expect that it will come in at the high end of guidance because of it.

·        Gold price and FX rates as always will be critical, I think the gold price will increase with inflation (based on cost to extract increasing). On the downside I see the A$ as a commodity-based currency holding up well in inflation and possibly acting as a headwind.

·        Gruyere mine reserves up 10% at year after extraction due to new discoveries. Nice to have more in a mine at the end of a year despite taking ore out all year long! (Magic pudding). 100% owned exploration work is also providing value accretion.

·        It is good to see a continuing commitment to issue dividends, which for a gold company is an important distinction. The Chairman said, “Dividends are a key mechanism of the Board’s strategy to generate and return value for shareholders.”

Valuation Adjustments:

·        $1.50 from $1.36 (Mar21)

·        Gold price changed from US$1700 to US$1900 in FY22 (FX0.80 unchanged for A$2,375 price) and AISC to align with management expectation for FY22 (mid point $1,370) and to grow both at 4% rather than 2% inflation previously used.

·        Extended and adjusted Gruyere mine output and AISC to mid-point of management’s expectations and for the additional life and production (stages 6 & 7 added).

·        Retain an assumption that ignores exploration spend and potential cash from exploitation of new discoveries. Assume this net off and at the end of the Gruyere mine provide a perpetual replacement. Note about $0.75 of my valuation is the Gruyere mine for the current life through to 2032, above that is cash (15c) on hand and terminal value assumptions (60c) of replacement production into perpetuity.

Valuation Sensitivity: different values for different key assumptions

·        $2.33 if FY22 Gold price is A$2,850 (US$2000 @ 70c)

·        $0.90 if FY22 Gold price is A$2,000 (US$1800 @ 90c)

Uncertainty around FX rates and the gold price over the long term is my key issue with GOR and I would treat a spike in price of GOR should gold spike as an opportunity to exit. A price of $2 or more without an increase in deposits would probably be an exit point.

GOR Valuation Mar22.pdf

Dics: I hold GOR

This morning GOR announced that it will not engage in a bidding war with Ramelius (RMS) for Apollo (AOP), leaving their $0.56 a share offer unchanged in the face of RMS’s $0.34 + 0.1778 RMS shares offer (which at current price is worth about $0.54).

It is good to see they are holding the line, I was worried when they put in the offer that GOR was going the way of most miners and empire building rather than giving cash back to share holders. They still may go ahead given they have 20% of AOP if circumstances change, but I take comfort that it’s not “at any price”.

Dics: I hold GOR

Duncan Gibbs (CEO) Ausbuz Interview (4/8/21)

Gold Road now all clear to ramp up production on ausbiz

Interview Notes: Comments on Qtly update and Diggers & Dealers conference

·         Production disruption a “speed hump”, remain confident on reaching the 350koz production

·         AISC driven by production level, so once at 350koz target they will sit in lower quartile of producers for the life of the mine.

·         Lab supply delays experienced but results coming through now.

·         Don’t see any need for significant capital spend due to the cash positive nature of Gruyere.

·         Eyes out for value accretive acquisitions but active growth pursued by exploration.

Conference Presentation (10Mb so too large to attach):

·         No new big announcements of new greenfield sites unlike last year.

·         Presentation doesn’t add a lot of new info, but interesting to see that Gruyere is the largest discovery in Australia since 2010 and represents over 10% of discoveries over the period.

No new news, but reassurance that production disruptions are a one off and that the 2023 production target of 350koz is still on track.

Lower production and higher AISC figures released today (unable to attach due to size) had been flagged in the Q4 Production Update released on 28 June, but we have a bit more detail and additional information on further drilling at Gruyere but no change to attributable mineral resources like the 20% increase announce last quarter.

Q2 Results (31 Dec year end):

·         Gruyere (100%) 53,132 oz gold produced, down from 66,213 oz produced in Q1 due to previously flagged disruptions (Torn conveyor delays sourcing parts and Ball mill restart delays) and also lower head grade of 0.92 g/t Vs 1.12 g/t in Q1 due to mining in lower grade areas which is expected to improve in coming quarters.

·         Ore minded was actually up considerably to 2,602kt Vs 1,946kt last quarter so it was the milling and grade issues that held gold production back.

·         AISC of $1,659/oz, well up on $1,386/oz from Q2 and the long term target for Gruyere of $1,300, but this was due to the above mentioned production and grade issues which “should not” be an issue long term.

·         Sales of 28,425oz were low (32,100oz in Q2) and an average sale price of $A/oz of 2,145 is well below current spot prices due to 36% of sales being hedged at A$1,823/oz.  About 25% of expected production is hedged out to the end of calendar 2022 at an average of A$1,874/oz so high spot price are not fully reflected in sales.

·         Cash is a healthy $129m, down on Q4’s $150m due to dividend payments and tax payments pushing operating cashflows negative on lower sales.

·         Gruyere 12,000m deep diamond drilling showing promise and progressing to phase 2 and we should expect an update on the Ore Reserve in H2.

·         Discovery work in Yamarna details provided with some encouraging results.

The production disruptions in Q2 at Gruyere are disappointing but don’t impact my valuation thesis which assumes they will be able to get to the targeted 350Koz product levels by 2023 and average an AISC of $1,300 with an average sell price of A$2,400 through to 2030.  The thesis also assumes that gold reserves can be replenished through new discoveries (Gruyere & Yamarna) to provide perpetual value and this also seems reasonable based on their drilling work to date.

I hold GOR at current prices, but would probably trim or sell if it got to $2 without additional justification for a higher valuation

GOR production update for Q4 today (28/6/21) attached flags production down time due to equipment failures which amounts to a small profit downgrade for FY21, but only a minor drop so despite any market reaction today I am make no changes to my valuation.

·         FY production remains within guidance of 260-300k ounces but at the lower end.

·         AISC guidance increased from $1,225-$1,350 to $1,325-$1,475

I continue to hold GOR

Valuation details