A high conviction gold junior

Being in Western Australia, there are plenty of small resource stories that potentially fly under the radar...until they don't. Many of them are more of the same. Endless dilution and big dream exploration programs. 

However, every now and again, an old story can have fresh life injected and offer potential major re-ratings. We think Matsa Resources (ASX: MAT) could be just that, but maybe not for long. 

Below is a note we wrote to our investors as part of our High Conviction Fund's investment thesis into Matsa as part of the recent placement (which we cornerstoned). 

Investment Highlights:

• Back of the envelope Some of the Parts (SOTP) valuation of $260m or 24c per share vs fully diluted market capitalisation of $107m (Devon production approx. net cash $80m, AngloGold Ashanti (AGA) option $110m cash and >900koz resource valued at $70m.)
• Currently campaign mining at Devon for approx. 18 months with the project currently processing first stockpiles and pouring gold. Devon expected to earn net to MAT approx. $80m at $5,400 gold.
• Existing tax losses of approximately $55m to see strong net cash to MAT from production.
• Potential to self-fund (via Devon mining cash flow / AngloGold option exercise) a circa. 1mtpa mill for gold production on a current resource of 949koz at an average grade of 2.5g/t with material exploration upside.
• Valuing the existing 949k ounces as development ounces (>$250/oz = $237m) with material exploration upside. This takes the SOTP to over >$400m valuation or approx. 40c per share.
• Based on the AngloGold Ashanti (AGA) option deal with MAT. We believe AGA has potentially found a material discovery that carries over into MAT’s ground. Depending on the scale of this discovery, we think the nearology and valuation of MAT’s exploration ground is drastically undervalued (or appreciated) by the market.
• We expect AGA to begin drilling on MAT’s ground shortly and the results will need to be shared to MAT under ASX continuous disclosure obligations. This could put a rocket under the potential of the area should these results show a material discovery in line with the 12Moz gold mine AGA own just north of MAT.
• If AGA don’t execute the option. MAT will receive a further $3m in milestone payments while MAT will retain any ounces discovered (which given AGA are willing to pay c.$110m for greenfield exploration ground and likely spending >$10m on drilling, it is highly likely more ounces will convert into MAT’s resource) with all drilling expense to find those ounces worn by AGA.
• MAT will have cash post successful execution of mining at Devon and AGA options exercise to self-fund development of their own processing facility to mine existing resources.
• Potential for larger regional consolidation of neighboring assets to further feed production profile of MAT.
• Existing camp and infrastructure facilities are also present and being used for mining Devon.
• Market seems to have largely missed this opportunity and the recent update from AGA in selecting tenements under the option has been catalyst for major re-rating (AGA handing back existing ounces and value to MAT).

Why the opportunity exists:

• Current management has not widely promoted the story, and no brokers currently cover the company with research, meaning there is limited detailed knowledge of the company and its projects with institutional investors.
• There is currently limited institutional ownership outside of major shareholder a German Fund (21.25%) and our Flagship Fund (8.42%).
• Market perception of the AGA deal is potentially misinformed; the options exercise price is fixed regardless of the tenements selected and AGA has handed back the rights to tenements containing the mineral resources quoted by MAT (Announced in June Quarterly). This means MAT now retains the >900k ounces as opposed to having them under option to AGA who have elected Greenfield exploration tenements under the option agreement.
• Mining of Devon has largely gone under the radar by the market, and the cash conversion is yet to be shown to market through Quarterly Cash Flow 4C filings with the ASX.
• Tight Capital Structure and supportive larger shareholders (last few raisings have been managed by MAT Management and stock has been placed in good hands) means the stock trades limited volume despite having a moderate number of shares on issue.

AngloGold Option Deal – Anglo may have found something big right on MAT’s doorstep…

AngloGold Ashanti (AGA)

AngloGold is a US-listed gold miner with a market capitalisation in excess of US$35 billion. They own and operate the Sunrise Dam gold mine up the road from MAT.

The Sunrise Dam mine was a 12 Million Oz gold deposit just to the north of MAT (220km from Kalgoorlie). It started mining in 1997 and went to a 500m depth as an open pit. It has since transitioned to underground mining in 2003 and since 2014 the underground mining has been the primary feed for the mill.

The existing Sunrise Dam mill can process 4.1mtpa and produces around 250koz of gold per year at an AISC of US$1665. It currently has around 1moz in reserve and mine life until 2028.

This is not an insignificant mill and requires further ore feed to extend the mine life. AGA also has a considerable exploration budget for this. We have also heard from various sources that this mill is for sale and potentially explains the potential growth/exploration option AGA have entered with MAT should this prove accurate.

Terms of the Option Deal

The option deal between MAT and AGA deal was announced 27^th Feb 2025. This was for AGA to acquire the majority of the Lake Carey Gold Project held by MAT as seen below.

The terms of the option deal allowed AGA to select tenements within the Lake Carey portfolio held by MAT they wanted purchase should they execute the option (also covering the tenement holding costs of the tenements).

Once selected AGA have a period of 18 months to execute this option and complete the purchase of the selected tenements. At the end of the option period, AGA can acquire these tenements by exercising the option and paying A$85.26m (based at the time on a $5200 gold price) and deferred consideration up to A$20m.

For these 18 months of time, MAT receives an $8m option fee ($5m was paid on CP’s being met and then $1.5m every 6 months until the end exercise date). This option exercise fee is calculated as 1.875% of the gold price multiplied by 936,000 oz at time of exercise less money already paid. This means that further appreciation in the gold price gives MAT upside in the consideration received (every $100 in AUD gold = $1.755m more in payment to MAT).

The deferred consideration is up to $20m based on JORC resources discovered by AGA above the 936koz based on 1% of gold price at time of option exercise. At a current spot price of $5500 this would be $55 per oz converted to JORC (363.6k additional ounces to receive $20m of the deferred consideration)

Total consideration is therefore $110.5m, assuming the deferred $20m payable converts (which we think is likely given the likely discovery).

On 23^rd June 2025 all CP’s were met and AGA paid $5m to Matsa as a second instalment. This triggered the 18-month option period which commenced formally on the 20^th June 2025. As part of this agreement MAT also received $750k for tenement related expense reimbursement since 18^th June 2024. MAT will receive a $1.5m option fee 6 months after 20^th June, being 20^th December 2025 and the next being 20^th June 2026.

On some basic numbers, if there is over 363k/oz on the MAT ground that forms part of the AGA option. Then AGA could be getting a good deal. If AGA discovered something like this and decided not to exercise the option, those ounces revert back to MAT as they are hosted on MAT tenements.

Effectively, AGA is agreeing to pay $103/oz at spot gold for greenfields exploration ground as they have retained no material ounces from the existing portfolio that originally set the pricing for the options deal.

AGA retain a ROFR for Fortitude North where they could match the purchase price for Fortitude North if MAT ever opted to sell the asset.

$110m for greenfields exploration… what do AGA know that we don’t?

While the option deal was attractive for MAT. Everything changed when MAT updated the market at the end of July in their quarterly that AGA announced they will nominate tenements as part of the option deal. The catch was that the tenements they nominated are effectively green fields exploration tenements with no ounces that formed part of the original deal being retained. These tenements surrendered no longer form part of the option and can be valued again within MAT (which based on $75/oz was approx. $70m in value back to MAT).

Based on the structure of the option deal, there is no impact to the price payable by AGA to MAT upon execution of the option. Despite AGA returning all the ground with known ounces on it in return for exploration ground.

The below snippet from the MAT June quarterly announcement details the tenements they have selected to retain as part of the option deal.

When these tenements were the only ones selected it raised our interest significantly. We have taken satellite imagery that shows AGA’s drilling activity trending towards the boundary with MAT’s ground, which may indicate prospectivity in the area. 

While we cannot conclude that a discovery has been made, the selection and economics of the deal do suggest AGA sees potential in these tenements and could be onto something material. How material this discovery is we will only know once the drilling occurs and the results shared with MAT.

Our view is that AGA has been exploring in the area for some time and may have identified something of significance adjacent to Matsa’s tenements. They have invested considerable time, effort, and money to secure an option agreement with Matsa (we understand negotiations took over 18 months to complete). 

The timing of the option being executed and announced was shortly after Patronous Resources (PTN) launched an unsolicited on-market takeover bid for Matsa earlier this year. This suggests AGA moved quickly to ensure the deal was secured when it was potentially at risk due to the takeover.

While the original option covered the majority of Matsa’s ground, the key change (and what we believe has materially shifted the economics for Matsa) is that AGA has since handed back most of the defined ounces (including Fortitude and Red October), retaining only the ground they are most interested in exploring (as indicated above). This focus on Greenfields tenure indicates AGA is targeting potential new discoveries rather than acquiring existing resources.

Historically, AGA has spent around A$95/oz to convert exploration ounces in this region. On that basis, the exercise price of the option would make sense if defined ounces were included; yet AGA chose to return them to MAT and focus instead on ground with no current JORC resources. 

This raises the question of what they may have encountered, particularly with a 12Moz deposit like Sunrise Dam nearby. Some of the early drill hits at Sunrise included intersections like 54m at 10 g/t! Pure speculation but we would get very excited if any hits like that could be replicated here.

We expect greater clarity in early 2026, as under the option agreement AGA is required to provide drilling data to Matsa, who must disclose material results under ASX reporting obligations. Should these results prove material, they could significantly increase interest in the area.

Using a rational thought process and a more conservative approach based on AGA’s historical exploration costs, we think there is potential that AGA is pursuing a +1Moz target (given they have handed back >900koz to Matsa).

This leads us to speculate that AGA may have indications of mineralization on a scale exceeding 900koz, which, when viewed in the context of the deal economics, would be consistent with their prior exploration spend. It should be noted, however, that this remains speculation: no discovery has been confirmed or reported by AGA as yet.

Geological Similarities

As they say, the best place to find a multi-million ounce deposit is right next to another one!

When we look at the geology and geophysics of the ground AGA is interested in, we start to see reasons for the interest.

Results from AGA’s planned drilling should provide greater clarity in due course.

Given AGA’s commitment of potentially spending >A$110m for exploration ground, it suggests they see significant potential in the area, although the scale and nature of any mineralisation is yet to be confirmed.

Importantly, Matsa continues to retain a substantial landholding across the district, providing significant leverage to any positive exploration outcomes in the region.

Exploration Upside – Fortitude North

As outlined above, interest in the Greenfields exploration ground appears warranted given the geological similarities. The area is ripe for more exploration. One of the tenements MAT retained through the option is The Fortitude North project which has shown exceptional promise with the limited drilling to date producing very encouraging results.

These major structures have historically been the focus of multi-million-ounce discoveries across the Eastern Goldfields. While the lithologies at Fortitude North vary from Sunrise Dam, the presence of similar structural controls and alteration signatures is encouraging.

Should AGA prove up a new material deposit nearby, it could rapidly elevate the broader district profile, drawing additional attention to Fortitude North and Matsa’s surrounding tenure. With limited modern exploration to date, the ground remains under-tested and represents a meaningful opportunity to add ounces in proximity to existing infrastructure.

DEVON MINING CASH FLOW IMMINENT

On the 28^th of March MAT executed a mining agreement with Blue Cap Mining (BCM) for mining of Devon. Initially the project was forecast to produce a surplus cash flow of around $59.8m pre-tax over an 18 month period using a A$4,250 gold price. As part of this agreement BCM will provide a working capital facility of $6m for mining, works on an open book at cost arrangement and will retain 20% of the profit at the end of the mining campaign.

At a spot gold price of $5500 the FCF of the project has increased significantly. Based on our estimates and modelling we think the free cash should exceed $100m on a total project basis of which MAT would retain 80% ($80m pre-tax).

With a rapidly accelerating gold price the profitability could improve further as MAT and BCM work out the most efficient mining rates and processing to maximise recoveries. That said, the start of any mining campaign carries risks and as such we have supported MAT’s decision to take an equity buffer into the results from the first mining campaign.

Future Mining – Matsa’s own Mill

Devon is all but one deposit and as we have demonstrated above, the AGA option has now returned all the other ounces previously under option agreement back to MAT.

With cash from Devon and the potential options exercise cash from AGA there is the real and likely possibility that MAT can self-fund and build their own mill to process the nearly 1 million ounces they currently have. With exploration upside to further expand this resource and potential for M&A, having a mill should unlock significant value for MAT.

Previous scoping studies have indicated a small, standalone project at Fortitude is feasible, however there has not been a study completed to incorporate all of MAT’s resource ounces or exploration upside. Fortitude optimisations from 2021 at a $2,400/oz gold price, indicates there is ~3.3mt at 1.6g/t that’s mineable in the current resource.

On past optimisation work at Fortitude and the addition of Red October as an underground mining opportunity, we see the potential for a 1mtpa standalone development producing ~80kozpa for 4 to 5 years.

Further drilling at Fortitude, Fortitude North, Red October and Devon, has the potential to add additional open pit and underground mining opportunities within the MAT package that could significantly extend this mine life.

Already MAT has the infrastructure in place to support a mining operation with their own 72 person camp, airstrip and haulage routes between projects.

If MAT was able to build and develop their own mill funded from cash it would likely take around 18 months from FID. As such, proving up more ounces in the short term is a priority as this would further support the development of a mill that could be ramped up for larger processing in the region.

The location of the MAT processing facility opens up the district for further consolidation with some operating mines in the area (i.e. Fish and Second Fortune ASX:BTR) currently toll treating at Mt Morgans.

It’s rare for a junior mining company to have the ability to potentially build a standalone mill from cash. This saves significant dilution and would see material upside in the equity valuation of the business on existing resources let alone any further exploration success or area consolidation.

When looking at similar mining comparisons and factoring in the dilution benefit to MAT from funding a development from cash there is potential to see material upside to the valuation of the company.

As indicated from this limited, but potentially comparable selection of ASX companies based on the production profile once the mill is built, there is scope to see a market capitalisation anywhere from $300m to >$1b. With exploration success this could expand further but it’s a good indication of the potential upside in MAT.

Conclusion

We think that the market has largely overlooked MAT and does not understand the story in enough detail. With limited research to date, we have spent considerable time and effort reviewing the portfolio and prospects of the company.

As we have demonstrated, there is significant opportunity for a material re-rate in the share price based purely on execution of mining at Devon, AGA option exercising and the existing resource. When looking at the downside, it’s hard to see why MAT should trade significantly below peers based on its current >900k/oz resource which largely underpins the current market cap.

Given that Devon is currently in production and ramping up, this cash flow is about to be realised from the market once reported in the quarterly reporting numbers (which many market participants scan). As this cash builds (assuming they generate $80m) we think a lot more investor interest will be warranted given how much of the current market capitalisation would be made up of cash.

Then, when looking at the AGA deal there is effectively $110m of payment due to MAT for Greenfields exploration ground that the market currently doesn’t value but could contain a new discovery. When the drilling results are eventually known, this could build a lot of excitement if there is indeed a material discovery by AGA next door. Given MAT’s tenement package and the encouraging results already seen at Fortitude North, there is scope for a lot of interest to once again build in this area.

When and if this does come to fruition, the real excitement is the potential to self-fund their own production facility. With exploration upside, a processing facility and a near on 1Moz resource there is a lot to like.

Our view is that this equity funding opportunity is potentially the last entry into MAT via an equity placement and should see a step change in the companies share register from retail to institutional ownership. As the broader investment communities’ interest in gold continues to grow and more institutional investors discover this story, we think the valuation will see a material step change to reflect the inherent value.

With some exciting exploration ahead, we are encouraged with what this could lead to over the next few years. All while the current modest valuation seems to reflect a limited downside based on comparative valuations. While there is potentially an uncapped upside scenario should the drilling prove out something much bigger.

Exciting times ahead.