Ausgold set to harvest inventory growth and cost savings with pivotal farm purchase

There are four farming families in Western Australia’s wheatbelt that have the champagne on ice ahead of them receiving the first instalment next week of a $35 million freehold land acquisition deal with gold developer Ausgold (ASX:AUC).

The deal covers 860 hectares and brings to an end legal action that has been running for the last two years over access to the land which prevented Ausgold from pursuing its Katanning mine development in an unfettered manner.

So while the farming families have reason to celebrate, so does Ausgold – something reflected in Thursday’s 12.5c, or 20.6%, share price gain to 73c, which added $53m to its market cap, taking it to $309m.

The Katanning mine development, 37km from the town of the same name, was the subject of a definitive feasibility study in June that arrived at a project producing its first gold in late CY2027 after capex of $355 million (not including freehold land acquisition costs).

The $35m price tag for the land acquisitions equates to less than 7,000oz of gold at current prices, or less than Katanning’s margin on 12,000oz of gold production, again at the current gold price, and based on the definitive feasibility study released at the end of June.

The DFS covered off on a $355m development with average annual production over an initial 10-year mine life of 113,700oz at an AISC of $2,265/oz, with higher grades in the first four years leading to annual out of 140,000oz at an AISC of $2,180/oz.

Using a $4,300/oz base case gold price (it is currently $5,200/oz), payback was estimated at all of 13 months. The net present value was put at $954m ($1.35 billion at $5,000/oz gold) and the internal rate of return came in at 53% (68% at $5,000/oz).

Katanning then is obviously a project that can wear the $35m wave goodbye to the farmers and remain super robust, something yet to be fully reflected in Ausgold’s market cap compared with its peer developers.

The land acquisition deal could well be the trigger for a re-rate in coming weeks. The company itself reckons the acquisition is transformational stuff.

It noted that the mineral reserve in the DFS (1.25Moz at 1.1g/t) was artificially constrained to remain within the eastern boundary of the mining licence because of access issues with the farmers.

How many ounces exist beyond the eastern boundary - remembering the mineral resource estimate stands at (2.44Moz 1.11g/t gold) – is not known. But it is assumed the in-ground value is multiples of the $35m land acquisition cost.

Ausgold hinted at that by saying it would now kick-off an optimisation of the DFS.

It has the goal of adding additional life of mine gold production from areas of the Central Zone which are part of the existing mineral resource but which are excluded from production estimates because of the previous tenure constraints.

Ausgold said another benefit was the potential for reduced mining costs by now being able to relocate waste dumps to reduce haulage distances.

The farmers have to be gone by February 2027. But the land acquisition deal provides the company with immediate access for exploration studies and surveys. It means greater and immediate access to some of Katanning’s most prospective areas.

Significant intercepts returned within the Central Zone before access became an issue will now be followed up with the drill bit. Those intercepts include 16m at 19.25g/t from 97m (Jinkas) and 7m at 10.94g/t (White Dam).

GORILLA:

Gorilla (ASX:GG8) is the midst of an intensive drilling program at its flagship Comet Vale gold project 100km up the road from Kalgoorlie where it aims to confirm that it is on to a camp-scale opportunity.

And the drilling continues to point in that direction, with latest drilling making a shallow and high grade discovery at the Happy Jack prospect which sits along a 10km long corridor of extensive known gold anomalism and historical workings.

The best result was a 21m hit grading 11.6g/t gold from 23m in a different position and parallel to the main trend of historical workings, marking it as a new discovery. Five rigs are whirring away at the broader Comet Vale area so Gorilla’s strong newsflow will continue on.

As it is, newsflow to date from a recast strategy to focus on high-grade historical projects near to treatment plants owned by others has been strong enough to carry the company’s market cap in the last six months from $120m to $272m this week (42c).

Away from Comet Vale, the high-grade focussed portfolio includes a 270,000oz at 4.1g/t gold resource at the Vivien project (ex-Ramelius) near Leinster, and a recently upgraded 350,000oz at 3.6g/t resource at the Mulwarrie project (ex-Genesis).

The Sovereign prospect resource at Comet Vale hosts a 96,000oz resource at 4.8g./t in underground and open-pit positions. But drilling success there and the Lakeview and Cheer prospects is expected to lead a major resource upgrade for the broader Comet Vale in the 2025 fourth quarter.

Gorilla boss Charles Hughes – he distinguished himself during a company presentation at Diggers & Dealers by wearing a hi-vis shirt because he had been the bus driver on a morning site visit – is as enthusiastic as he can be on Comet Vale’s potential.

Announcing the Happy Jack assays, Huges said what “continues to emerge at Comet Vale is just the sheer scale of the exploration opportunity”.

“After discovering thick, high-grade gold at Lakeview in late February, we realised there is an opportunity for a much larger, camp-scale gold system,” he said.

“Lakeview is located on a structure that sits in a significantly different orientation to the Sovereign deposit that produced 200,000oz at 20g/t gold and had been the focus of most of the historical drilling and mining.

“Given how lightly explored the rest of the project area has been, there was clearly a significant opportunity for Gorilla to find a lot more gold – and this drilling at Happy Jack is part of the first phase of testing this hypothesis.”