Western Australian gold companies used this year’s Diggers & Dealers Mining Forum to outline strategies that will grow their resource base.
Big exploration budgets and industry-changing mergers and acquisitions (M&A) have defined the gold industry over the past year.
And despite a weaker gold price in 2021, the value of mapping a plan to unlock hidden potential in gold assets has remained front and centre for a large slice of Australia’s mining industry.
Australia became the world’s largest gold producer in the first half of the 2021, surpassing China.
It remains to be seen if Australia can keep up this pace, with Surbiton Associates director Sandra Close saying China has faced work challenges this year.
“It is interesting to look at the amount of money now being spent on gold exploration as a proportion of total mineral exploration expenditure,” Close says.
“In 2001, gold exploration comprised around 55 per cent of total mineral exploration expenditure. It fell to only 20 per cent between 2008 and 2014, but has recovered now to around 50 per cent.”
According to the Australian Bureau of Statistics (ABS), Western Australia continues to grow its gold sector, with sales reaching an all-time high of more than $17 billion in 2020, supported by an average Australian dollar price of more than $2500 per ounce.
However, Evolution Mining executive chairman Jake Klein says gold miners have faced challenges since the highs of 2020.
“It’s been a tough 12 months for the gold sector with lots of headwinds,” Klein, presenting at the 2021 Diggers & Dealers Mining Forum, says. “Last year at this forum, gold was at an all-time high (as) the world was going to proverbial hell in a handbasket as it grapples to deal with the spread of the pandemic.
“This year, we the gold miners are in the doghouse. Even though the pandemic is far from over the markets and metal prices are acting as if it was.”
Klein believes the volatile market encourages investors to have exposure to gold as a safe-haven investment.
Evolution’s approach to the gold market focusses on Tier 1 assets in Australia and Canada, meeting investor expectations for gold projects to be developed in areas that have fair mining laws and are geologically rich.
In July, Evolution bolstered its portfolio with the acquisition of Northern Star Resources’ Kundana assets in Western Australia for $400 million.
The Mungari acquisition has cemented Evolution’s footprint in Western Australia, with Klein saying the operation will be transformed into a cornerstone asset for the company.
“We now have immediate access to significantly larger volumes of higher-grade material and the opportunity to extract material synergies that were just not available to either ourselves or Northern Star in the absence of this transaction,” Klein says.
“The resource grade of the operations we are acquiring is almost three times the resource grade of our existing operation at Munagri; these high-grade ore sources will now be prioritised and will be fed into the mill with priority.
“Combining the tenements delivers a mineral inventory of 4.6 million ounces, which can be optimised and delivered benefits on day one.”
Evolution, which has since processed first ore from Kundana at the Mungari mill, is aiming to produce between 700,000 to 760,000 ounces of gold at an all-in sustaining cost (AISC) of $1220 to $1280 per ounce across its operations this financial year.
Western Australia is a hotspot for gold M&A as headlined by Northern Star’s $16 billion merger with Saracen Mineral Holdings.
The announcement was made a week before the 2020 Diggers & Dealers Mining Forum before being finalised in February this year.
Following the merger, Northern Star has set out to become a two-million-ounce-per-annum gold producer as part of a five-year strategic plan.
Super Pit since it merged with Saracen.
Northern Star’s profits are also now in record territory with $648 million in the 2020-21 financial year, a result the company backed up with a $0.95 cents per share dividend.
More than a year after announcing the merger, Northern Star managing director Stuart Tonkin says it has solidified the company’s standing as a major gold producer.
“For Northern Star investors, it’s a pretty exciting time with the platform we’ve created,” Tonkin says.
“We now hold over 21 million ounces of reserves in gold. We have 56 million ounces in resources, we have a very proven track record of converting those resources and extending our mine lives, and adding and growing reserves and resources in a per share basis.”
As the sole owner of the Kalgoorlie Consolidated Gold Mines (KCGM) in Western Australia, Northern Star plans to grow the Super Pit mine by tapping into the Fimiston underground resource.
Tonkin says KCGM’s underground potential has been brought to fruition since the acquisition and could lead to further mine-life extensions.
“We already have – since ownership in 18 months – four million ounces of inferred resources that were not there at acquisition of the asset,” Tonkin says.
“None of this is in our forecast plan growing profitably to two million ounces so there’s a phenomenal opportunity here at Kalgoorlie and the Super Pit.”
While the early signs of the synergies from the Saracen merger are already showing for Northern Star, the company is expecting its full potential will materialise in the coming years.
“You will also see us migrating down the cost curve. It needs that capital investment to get the economies to scale, to liberate some of the synergies that we’ve identified in the merged businesses with Saracen and Northern Star,” Tonkin says.
“They will take time to come in, but once they are in, their sustainable lower cost improvements and synergies will be delivered.
“I guess when you look at the investment thesis for Northern Star and you compare us up against the rest of our peers, we absolutely have some of the best assets in the best places in the world. We focus on Tier 1 locations and it’s deliberate.
“We have a significant opportunity to grow our production, to grow our margins and grow our mine lives which ultimately adds value for all of our shareholders, and we have the operational and financial acumen to continue to develop and expand on this business.”
Newcrest Mining, Australia’s largest gold miner by market capitalisation, is eyeing additional gold deposits surrounding the Havieron gold-copper project in Western Australia’s Paterson Province.
The company entered a six-year farm-in agreement with Greatland Gold for the project in May 2019.
Havieron contains an initial inferred resource of 3.4 million ounces of gold and 160,000 ounces of copper, with Newcrest general manager Fraser MacCorquodale saying its growth program will help expand the project’s mineral resource.
“Over the past few years there have been some great exploration success stories coming out of Australia,” MacCorquodale says.
“The best example is the Havieron discovery by Greatland, who were willing to drill holes up to a kilometre and the reward for both companies out of that has been fantastic.”
Newcrest is exploring the South East Crescent Deeps, which display high-grade gold that is open at depth; the Northern and Eastern Breccia targets, which also show open higher grade mineralisation; and other geophysical targets near Havieron.
The company is searching for a larger zone of mineralisation through its Northern and Eastern Breccia targets, which may display similar traits to Havieron’s North West Corridor, while the mineralisation of South East Crescent deeps is still being determined.
“This is all about (finding out if there) are there more Havierons floating around Havieron,” MacCorquodale says. “We’re looking forward to see what is coming out of our drilling programs.”
Capricorn Metals is one of Australia’s up-and-coming gold producers, having poured first gold at the Karlawinda project in the Pilbara region during June.
The project contains a single ball mill comminution circuit is targeting around 100,000 ounces of production a year.
“We’ve got more than 10 years mine life on current reserve base of 1.2 million ounces which we think has the potential to get a lot bigger,” Capricorn Metals chief executive officer Kim Massey says.
“A really important point for us is that this is a new project. We’re not burdened with large growth capital numbers that you’re seeing more mature projects have to keep their production at current levels.”
An industry trend of growing existing resources is evident at Capricorn. Massey says the company is focussed on exploring the site’s surrounding regions to expand its 10-year mine life.
“The gold potential in this region is starting to be recognised with the recent gold discoveries changing the way we’re thinking about the Pilbara,” Massey says.
“We’re seeing gold discoveries in the Pilbara across a number of geological settings. You’ve got the greenstone hosted shears like we’ve got out at Karlawinda and Calidus’ Warrawoona project, the granite-hosted intrusions De Grey is getting out at Hemi and the folded mafic intrusion like you’ve got out at Paulsens.
“Pleasingly, we’re seeing those geological settings across our tenement package with only a fraction of our ground having been explored for gold in the past.
“The hurdle for exploration success becomes a lot lower when you’ve got a mill turning in the district and any exploration success you do have generally adds significant value for the company.”
Western Australia’s exploration incentive scheme (EIS) pushes for exploration activity across the state through 3D perspectivity mapping, geophysical surveys, exploration through cover, strategic industry research and innovative drilling.
According to the Western Australian Government, for every $1 million that is invested through the EIS, $31 million is generated in benefits for the state.
The Gruyere gold joint venture between Gold Road Resources and Gold Fields is the most successful example to come out of the EIS.
Opened in December 2019, the mine was one of the largest gold discoveries in Western Australia in more than a decade.
The JV partners aim to grow production further through an increase in gold grades and a lift in throughput.
“(Our) three-year outlook sees us building annualised gold production to a sustainable 350,000 ounces,” Gold Road managing director Duncan Gibbs says.
“Gruyere is really in a fairly unique tier of operations. There really are only three five-million-ounce-plus discoveries made this century: Tropicana, Gruyere and Hemi.
“That underpins Gruyere being a top 10 producer both in terms of annual production and the total resource and reserve inventory.”
Gruyere, which has a 12-year mine life, contains open pit reserves of 3.4 million ounces and an open pit mineral resource of 6.7 million ounces.
Gibbs says Gruyere is operating across two kilometres of mineralisation in a single pit, but the JV partners are now exploring its underground potential.
“We’re looking to extend that mineralisation at depth with this deeper drilling to understand the long-term potential,” he says. “We’ve got some of the initial intercepts … of 100-odd metres over a gram and within that some hybrid core zones.
“An issue we’re going to look at is what’s the best way to mine that? Do we mine all of those wide mineralised zones? Or do we mine out the higher-grade intercepts within that?
“We’ve done enough to indicate we think it’s viable if we get the continuity of mineralisation we’re hoping to expect.”
To expand its footprint, Gold Road is looking for a second gold operation in Western Australia.
This includes the company’s Southern project area, which hosts the Gilmour resource that contains a 258,000-ounce indicated and inferred mineral resource.
“We look at Gruyere as a long-term operation where the plant is going to be full of a combination of open pit and underground ores,” Gibbs says.
“The big leverage for value for Gold Road is to make a second discovery, so our focus is really within the southern part of the Yamarna Belt.
“What we’re really starting to unlock now is some fairly coherent zones of regolith anomalism; that lets us get more focussed with our RC (reverse circulation) and diamond drill follow up.”
ABS data reveals that gold exploration grew by 41 per cent year on year to $430 million in the June 2021 quarter.
As gold companies look to the future, the trend of increasing resources and mine life looks likely to remain at the forefront.
And Western Australia is well positioned to maintain its place as the key jurisdiction hosting many of Australia’s leading gold deposits.
This article appears in the October issue of Australian Resources & Investment.