Little S2 scoops big Kirkland on red-hot Victorian gold tenement

It was kind of neat that the Victorian government finally got around to announcing the winning tenders for exploration blocks around the Fosterville gold mine near Bendigo just days before the running of the Melbourne Cup.

Fosterville, owned by Canada’s Kirkland Lake, again provided the gold for the actual cup, an act of generosity and community engagement that one of the world’s highest grade and most profitable gold mines could well afford.

As it turned out, Kirkland Lake picked up three of the Blocks (1, 2 and 3) in the Fosterville exploration ground tender with work program bids totalling $90.6 million over five years, leaving Mark Bennett’s S2 Resources (S2R) to prevent a clean sweep by the friendly foreigner with its winning tender of $10.4 million over five years for Block 4.

The tender process was an arduous one, with no less than three expert “panels” involved in assessing the tenders – a technical advisory panel, a responsible exploration advisory panel and a traditional owner advisory panel.

While Kirkland Lake brought the big bucks, it has to be said it didn’t get what it wanted. Block 4 was what it wanted as it is the one that actually surrounds the Fosterville mine, incorporating the northern and southern extensions of the stratigraphy and structures which host Fosterville’s rich mineralisation.

It’s ground Kirkland Lake would have been banking on to yield another Fosterville, given time and a bit of luck.

So it can be assumed that Kirkland Lake’s tender for Block 4 was at a multiple to what S2 came up with in dollar terms. But no cigar. Little S2 won the day.

Was it because the government wanted an Australian player, or did S2 just do a better job across the environmental, community engagement and traditional owner considerations of the tender?

Good luck trying to get the government to talk on the subject.

What is known is that S2 has secured what is one of the hottest bits of exploration ground on the planet. It’s a block that Kirkland Lake would have desperately wanted to secure. Blocks 1,2 and 3 are very much a second prize.

It was the 2017 discovery of the Swan Zone at Fosterville – 2.7 million ounces at 32g/t gold - that turned what was a crappy gold mine in to the one of the world’s best.

It set the exploration scene in Victoria alight, making the bidding for the four tender blocks as competitive as they come, with the all-up $101m exploration commitment from the tender set to add to already record gold exploration levels in the state, in the modern era at least.

The pick-up by Bennett’s S2 was warmly received by the market, with the well credentialled explorer’s shares taking off from 8.4c to 18c since news of the winning tender was announced last week.

There is a process of permitting and engagement to go through before S2 can get busy with the drill at its Block 4 tenement. So it could be as much as 6-12 months before its hunt for another Fosterville – or Bendigo for that matter – can get going on the ground.

Not to worry, S2 has a full book elsewhere, including Finland, to keep it busy while Block 4 is advanced to the drilling stage, much to the chagrin of Kirkland Lake.

Bennett, S2’s executive chairman, is recognised as one of the country’s best explorers. His roll call of discoveries (with teams) includes Thunderbox (gold) and Waterloo (nickel) in 2012 for the long gone LionOre, and the Nova-Bollinger nickel discovery in 2013 for Sirius Resources which he founded.

Sirius was later acquired by IGO for $1.8 billion, a fine reminder that junior explorers can create some serious value with the drill bit. The meaning behind the name of S2 is not lost onn anyone.

Chalice revs up Falcon

Talking about creating value with the drill bit, there is no better example than Chalice (CHN) in more recent times.

It’s first-hole Gooneville PGE-nickel-copper discovery in March 2020 at its Julimar project on the doorstep of Perth has turned it from a $50m explorer to the $2.3 billion ASX Top 200 company it is today.

A maiden resource estimate for the find is close, and will be followed by exploration along the intrusive complex to the north where more Gooneville look-alike targets are waiting to be drilled. It is a new province in the making.

But before all the excitement around Julimar, Chalice’s main go was gold exploration beneath thin sediment cover in Victoria to the north of Bendigo and Fosterville.

Fleet of foot, Chalice responded to the game-changing 2017 discovery of the Swan Zone at Fosterville by securing 5,000sq kms of lightly explored ground in Victoria’s so-called Bendigo zone.

Julimar has obviously changed Chalice’s priorities, prompting the decision to demerge and IPO the Victorian ground (and some WA exploration properties) into Falcon Metals. Chalice shareholders pick up a 1-3 distribution of Falcon shares, and a 1-6 entitlement in the $15-$30 million IPO.

Assuming the full $30m is raised in the IPO, Falcon will have a market cap of $88m at the issue price of 50c. So it is going to be a serious player in the Victorian gold scene.

Chalice’s MD and CEO Alex Dorsch continues on with the Victorian portfolio as an independent non-executive of Falcon although Chalice itself will not be holding any Falcon shares. He was on hand on Thursday for the formal launch of Falcon.

“Chalice shareholders will recall that before the Julimar discovery, this was very much the jewel in our crown” Dorsch said of the Victorian ground.

“We remain very excited about this part of the world because first and foremost, the region hosts one of the highest grade and most profitable gold mines anywhere in the world, being the Fosterville gold mine.

“The unique thing about Victoria is the grade of the deposits. When you find something that approaches the average grade of the previous mines, and the current mines, in Victoria, that gives you a hell of a lot of robustness in your project economics.

“That’s not something the more marginal fields and lower grade deposits get elsewhere in the world. So I think Victoria really is primed because if you can get it right, and you can make that big and high-grade discovery, you will survive through all parts of the cycle.”

Dorsch said the Victorian portfolio had been unfairly moved to second position in Chalice’s portfolio because of the high profile nature of Julimar.

“So this puts Pyramid Hill (Falcon’s flagship Victorian project) back in the frame, and enables greater flexibility to determine the ultimate capital structure for each company,” Dorsch said.

“I guess now that Chalice is entering the development phase with Julimar, that’s a quite distinct set of circumstances compared with the early stage exploration that Falcon will be doing,” the former McKinsey guy said.

And who is non-executive chairman of Falcon? Its none other than S2’s Bennett who decamped from Perth to country Victoria a while ago for lifestyle reasons and who now, all of sudden, finds two very good reasons to be based in the state – S2’s Fosterville block and Falcon.

Talking at the Falcon IPO launch, Bennett said that from the point of view of finding another Fosterville or Bendigo, the Falcon ground was pretty much under explored.

“And we know that the geology goes underneath our ground so it is highly prospective, and not far from the world famous Fosterville,” he said, resisting the temptation to use the free airtime to plug S2’s Block 4 pickup.

Falcon expects to have two diamond rigs whirring away early in January at the advanced Karri prospect and an aircore rig spinning away later in the month at the Ironbark prospect, both part of the Pyramid Hill project.