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Feb 2005 - Aust Gold Mining Era

The Start of a New Australian Gold Mining Era

At least 12 “new” mines are in the process of being commissioned over the coming year, a situation that we last saw almost 12 years or so ago in the early 1990s. The early 1990s saw the formation/creation of what became significant gold companies such as Delta Gold, Plutonic, Newcrest and Normandy, and the start of some of the major producing mines in the Australasian region.

The next year or so could represent a similar growth period for new mines and hence companies. Just as then, some of the mines are based on a mixture of old mining areas, and completely new areas.

These growth periods attract investors due to the classic share price appreciations that often occur ahead of a mine producing say its first gold bar. Typically while in construction, a company’s share price drifts sideways and then appreciates often up to 2 months ahead of the mine being commissioned as shown in Figure 1 of Gallery Gold (GGN) in the past year and its more than 60% share price appreciation from 30Ac on 30 September to 49Ac on 10 November 2004 as Mupane poured its first gold bar in early November 2004.

Figure 1 Gallery Gold (February 2004 to February 2005) (Source : www.yahoo.com)GDNfeb05-1

With physical production comes the potential to exceed what has been estimated or forecast, with 20% higher throughput rates often the norm. Although it has to be accepted that the gold price has appreciated from US$286/oz in May 2001, Newcrest’s share price of only A$4.09 on 11 May 2001, rose almost 10% in the following week to 18 May, as Ridgeway’s production estimates were upgraded from an expected 240,000ozpa to 350,000oz in 2002/2003 with a peak of 390,000ozpa in 2003/2004.

(For the record, NCM’s Ridgeway commenced production in early 2002, and produced almost 102,000oz in DQ04 at a cash cost of – (minus) A$83/oz (due to copper credits). Cadia and Ridgeway produced 187,000oz and 18,400t of copper in the quarter, about 20% higher than their combined expected 600,000ozpa gold and 60,000tpa copper).

We have compiled a table (see Table 1, with share prices as at 4 February 2005) of what mines are expected to be commissioned and pour their first gold bar during 2005. The list is not comprehensive as we are bound to have missed some, and there are others which appear to be capable of achieving production in 2005 such as Gleneagle (GLN), but have not yet announced their intention. Yilgarn (YLM) have also announced that they expect to pour gold from Rose Dam in JV with PDG’s Paddington operations in mid-2005, but at this stage expect to finish operations there by Dec-2005.

Newcrest’s Telfer has been omitted from the list as it is regarded as being in a class of its own. We know of a number of mines in pre-feasibility stages that are expected to start construction in 2005 for production in 2006, but at this stage have left the list simply for what is expected in 2005.

Table 1. Australian listed Gold company’s new mines that are expected to start in 2005.GDNfeb05-2

Initially for the first half of 2005, Dragon’s and Sedimentary’s mines are starting production, followed by Perseverance, Pan Australian and then Nu Star in May 2005. There then appears to be a gap to BMA Gold in September, followed by Bendigo and Highlands in November, with the year ending on Reed, Tanami and Crescent. Avoca were originally going to toll treat their ore by mid-2005, but with the progress and potential at Higginsville are apparently examining the possibility of putting in their own mill by MQ06.

Given the range of where the mines are coming into production quite clearly the Australian mining industry appears to be at the start of a “new gold mining era”. Especially with the announcements as recently as on 7 February 2005 that Bullion is attaining intersections at depth in Chalice (WA), Austminex has apparently taken an option over Herald and Leviathan’s Coolgardie ground in WA, and Leviathan is farming in to Reliance’s West Ballarat area in Victoria.

It should be added that there are also a number of non-gold mines that expect to start production in 2005, such as those of Bluestone Tin in Tasmania and Queensland.

Disclosure and Disclaimer : This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (an independent research company) who is an Authorised Representative with Taylor Collison Ltd, and with his associates, holds interests in some of the stocks mentioned in this article. The opinions expressed in this article should not be taken as investment advice, but are based on observations by the author. The author does not warrant the accuracy or completeness of any information and is not liable for any loss or damage suffered through any reliance on its contents.

  • Written by: Keith Goode
  • Tuesday, 01 February 2005