Under-valued project developers still attractive for gold bulls

The ASX-listed gold developers looked interesting enough back at the start of the year when the Aussie gold price was $4,233/oz.

But things have lit up for them now that gold has settled above $5,000/oz, most recently at $5,109/oz for a 21% gain in the year-to-date.

Projects in the pipeline that looked robust enough with gold in the low $4,000s now positively shine, mostly at any rate.

The thing is though that while equity values for the developers have moved higher with the gold price, there is a case to be made that they haven’t moved nearly as high as they probably should have.

It’s the developer’s disconnect and is fair enough when final investment decisions remain subject to project financing being nailed down.

Things have never been better for a developer looking to finance a project. But until it’s locked away there is a risk around the gold price letting go of its end of the bargain by potentially falling away from its near-record level.

Still, true believers in the gold sticking around current levels would seem to have an opportunity to survey the disconnected gold developers and invest ahead of the re-rate that comes as a project finally gets into production.

Astral:

Astral (AAR) was a $168 million company back in December when the Aussie gold price was more or less $4,000/oz. It is now as $250m company (17c a share).

So the gold price putting on $876/oz since December 31 in Aussie dollar terms has had a rub off effect on the stock.

But the recently released pre-feasibility study into the development of its Mandilla gold project near Kalgoorlie points to more valuation upside still, particularly for true believers in $5,000-plus Aussie gold becoming a lasting thing.

At a conservative base case gold price of $4,250/oz used in modelling, the project (95,000oz pa in the first 12 years) was forecast to generate more than $2.8 billion of pre-tax free cashflow. Payback was estimated at less than 1 year and pre-tax NPV was estimated at $1.4 billion.

Plug in a $5000/z gold price and the cashflow takes off to $3.9 billion, payback falls back to the time it takes to get pregnant and have a baby, and NPV comes in at $2 billion.

Those sort of numbers should be of interest to investors when viewed against the now-stretched valuations of some of the leading gold producers.

It can also be suggested that the numbers will be of real interest to the gold producers with their fancy priced scrip thinking about making Mandilla their own.

Ausgold (AUC):

Ausgold (AUC) was a $145 million company back in December and now is valued at $268 million (75c a share). So it too has been carried higher on the back of gold’s rise to more than $5,000/oz.

But it is doubtful the gain has matched the capability of Ausgold’s Katanning gold project in wheatbelt country to the south of Perth.

Katanning has been a slow bake since 2010 when Ausgold picked up what was then rated as a 400,000oz resource.

The resource base has since grown to 3Moz of free milling ore. Katanning is also set to become the treatment hub, in time, for the region’s largely untapped gold potential.

More to the point is that Ausgold has previously flagged a definitive feasibility study would be released in June, and here we are on June 27.

The project was previously scoped as having the potential to produce 136,000 ounces annually from open-cut ore sources for more than 10 years.

All-in sustaining costs were put at $A1,549 and preproduction capital costs weighed in at just under $300m. But those are 2023 figures and things will have changed, including the reserve component of the resource thanks to infill drilling work.

Canaccord has just initiated on the stock with a $1.60 price target which goes to what was said earlier about advanced gold developers being underdone share price-wise.

Canaccord is modelling a 3.6Mtpa operation producing 118,000oz annually at an AISC $A2,326/oz over a 10-year mine life (132,000/oz at AISC of $A2,197/oz for the first 7 years), with name plate production expected early in the first of CY2028.

“Leaning on the previous studies on the project, and inflating/bench-marking costs to current levels, we model all in capex (including pre-strip) for the Katanning gold project $380 million,” the broker said.

It noted that its base case did not incorporate the potential for expanding the mill to about 5Mpta, which would be a function of ongoing exploration success.

Like Astral’s Mandilla, the payback/NPV and other metrics in the Katanning DFS at A$5,000 gold – assuming Ausgold includes that along with a lower base case assumption - is likely to be eye opening stuff for the market, and potential suitors.

Uvre:

Investor choice in the gold exploration space is to be expanded to New Zealand under a proposal to be put to Uvre (UVA) shareholders in West Perth today.

The former uranium/lithium focussed explorer is picking up a bundle of gold exploration projects in the North and South islands from a company associated with mining industry veteran Norm Seckold for a share consideration.

Seckold is to join Uvre’s board as a non-executive director which adds to a dance card that already includes his chairmanship of Nickel Industries (NIC), Alpha HPA (A4N), Fulcrum Lithium (FUL) and Sky Metals (SKY).

Not so well known was a former role as founding chairman of Santana Minerals (SMI) which is now a $390 million company on the strength of its discovery and now development plan for the 2.33Moz Bendigo-Ophir project near Queenstown.

Santana’s success has fired up interest in Kiwi gold and will not hurt the market’s interest in Uvre’s portfolio. Apart from Santana and the gold price being on fire, the real momentum push for Kiwi gold has been the welcome mat put in place by NZ’s newish conservative government.

It delivered on a promise to introduce a fast-track approvals process in December last year. It does away with the anguish of the former approvals process for projects of national significance.

Its aim is double mining exports from the country to NZ$3 billion by 2035. Once accepted in to the fast-track process, there is meant to be a prescribed six months permitting process. Santana is close to lodging its application for the Bendigo-Ophir project.

Uvre doesn’t have a project at the development stage just yet but Seckold has been moving things along ahead of today’s meeting. It could be that there is an update on that front for shareholders ahead of the vote.

The flagship projects are the Waitekauri epithermal gold project in the North island and the Oturehua orogenic project in the South island. Given the historical mining and exploration that has taken place at Waitekauri, it is likely to be the first drilled under Uvre’s ownership.

The project is located 8km west of the Waihi gold mine (10Moz endowment) owned by the now Canadian-listed OceanaGold Corp.

When it is all said and done, the new look Uvre will have 188.95 shares on issue and cash of $6.2 million to get cracking at its NZ adventure. Leverage to success is good given a market cap of about $15 million.