In a sector where market caps have run hard on the back of robust margins, $15m-NTM, which comes complete with a 277,000oz inventory in WA and imminent resource upgrade, seems to have much to recommend it. Plus, Encounter Resources’ enviable JV with Newcrest leaves it highly leveraged to exploration success.
Finding a lightly-capitalised growth story in the ASX gold space is tougher than ever.
The Aussie dollar gold price of more than $1,730/oz and the on-average margins of $700/oz which that offers up for those with near-term production potential has kind of made sure of that.
But there are still a few out there which for one reason or another have been overlooked. NTM Gold (NTM) is a case in point.
It is trading at 4.5c for a market cap of all of $15 million, which is pretty much the value of your average gold explorer nowadays without any resource ounces in the bank.
But in NTM’s case, its Redcliffe project, 45km north-east of Leonora in WA’s North-Eastern goldfields, comes with a resource base across two deposits of 277,000oz (5.48mt at 1.57 grams of gold a tonne).
That’s been the case since 2012, which explains why the stock has been overlooked in recent times, notwithstanding NTM’s ground position covers some 40km of the gold-pregnant Mertondale shear zone (MSZ).
Find the kinks and wobbly bits in the MSZ and you’re more than likely to come across a blanket of oxide gold mineralisation covering higher-grade shoots which head down to who knows where.
NTM has probably got another 20km or so of the MSZ to test and the deposits outlined to date are open along strike and at depth. It’s been busy too in recent times and last year added the Bindy deposit to its collection.
Still no resource upgrade. But one is coming, probably around mid-year.
At its current market value, NTM is trading at lower end of the $50-$90/oz enterprise value-to-resource-ounce the market uses as a rough valuation tool. So it can be said there is nothing in the share price for the coming resource upgrade.
There’s no point in guessing what the new resource figure will be. What can be said is that there has been a lot of drilling since 2012 across three deposits – Nambi, GTS and Bindy - and that there is obviously going to be a maiden estimate for Bindy.
Don’t expect the magical 1moz with the update. But given prospectivity of the MSZ and the yet to be closed-off existing deposits, there is good reason to be believe that 1moz is not an unrealistic medium-term target.
As NTM works its way to that sort of resource base, the question will become, does it build a stand-alone processing plant or go the toll treatment route with one of the four – and possibly five – treatment plans within trucking distance of Redcliffe?
Options around development concepts are a good thing to have. Having said that, the likelihood of NTM building a sixth mill in the region seems unlikely, unless of course NTM comes up with something seriously big.
The Leonora region has yielded plenty of multi-million-ounnce deposits, including Gwalia, Thunderbox and Mt Morgans.
And while Redcliffe’s long-term history has been one of pattern drilling to set depths looking for shallow oxide gold, its future excitement will be driven by exploring the high-grade shoots below the oxide blankets, or directly into the shoots where the blanket has been geologically stripped away.
Hats off to Will Robinson (no Lost in Space jokes here today) and the team at Encounter Resources (ENR) for securing one of the most significant greenfields exploration joint ventures by a junior with a mining major seen in recent times.
The joint venture is with the growth-by-exploration focussed Newcrest and is the upshot of an earlier alliance between the two companies under which Encounter would bring the otherwise-busy Newcrest greenfield exploration opportunities in WA’s frontier Tanami and West Arunta regions.
The pair have just completed five new joint venture agreements which Newcrest will manage on a 50:50 basis.
Encounter gets an option on whether it wants to fund its 50% share or let Newcrest fund the lot to the point at which it finds more than 1Moz, when Newcrest moves to an 80% interest.
But should Newcrest get to that 80% conversion point, Encounter will have the option of being bought out at an independently-valued price. Alternatively, if Newcrest doesn’t go on to find 1moz, the projects go back to Encounter.
In essence, Encounter has a 20% free-carried option, should it so desire, right down to the point where Newcrest has outlined a 1moz resource.
Based on average gold finding costs in Australia of $50/oz, getting to the 1moz trigger point at any one of the properties could cost as much as $50m.
Newcrest won’t need any encouragement to spend like that if in fact any of the properties show 1moz potential, or the 5moz-type potential a company of Newcrest’s size is really after.
There is an early reward for Encounter for its scouting work in the Tanami and West Arunta. Because one the five projects was being worked on before the alliance took shape, Newcrest will flick it $1m in tranches.
That project is the Phillipson Range joint venture covering 1,570sqkms in the southern Tanami. It’s also a prime example of why, away from the mechanics of the joint venture, there is some real excitement about what lies ahead.
The western end of the area has been the subject of a government survey which outlined a peak gold soil anomaly of up to 63 parts per billion gold in a 5 x 5km helicopter supported auger sampling survey.
The 63ppb reading is off the charts relative to some of the big WA discoveries originally picked up sampling surveys. Tropicana down south comes to mind. Just as exciting is that the Phillipson Range ground has never ever been drilled.
Other projects in the joint venture come with similar sorts of excitement levels, be they on virgin ground or ground where previous exploration has shown plenty of promise before being halted for one reason or another.
The market has yet to recognise the significance for Encounter of all that, even if it was up 0.5c or 7.6% to 7c a share on Wednesday. That gives it a market cap of $12m which is more than covered by its solo exploration efforts in WA’s Paterson Ranges looking for the region’s next big copper-gold deposit to Newcrest’s Telfer, funnily enough.
So it can be said there is nothing yet in Encounter’s market value for what could come from the frontier exploration effort with Newcrest. Time will tell but it is clear that Encounter’s leverage to any success is extreme.
One of Australia’s leading business journalists, Barry FitzGerald, highlights the issues, opportunities and challenges for small and mid-cap resources stocks, and most recently penned his column for The Australian newspaper.