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Take The Turn Down Gold Road
BY JAMES DUNN - 29/01/2016 | VIEW MORE ARTICLES BY JAMES DUNN

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GOR - GOLD ROAD RESOURCES LIMITED


Listed in 2006, Gold Road has shown all the extremes that hardened gold investors expect to see. The stock traded as high as 76 cents in April 2011, but was down as low as 4.3 cents in June 2013. Since then it has climbed to 37 cents as it has done the hard work on establishing the Yamarna Belt as a major new gold region.


2016 is shaping up as a big year for gold exploration company Gold Road Resources Limited (GOR), which is progressing its Gruyere discovery through feasibility studies and spending $10 million drilling for more gold finds on its 5,000 square-kilometre chunk of the Yamarna greenstone belt in Western Australia.

Discovered in October 2013, Gruyere is the largest gold find in Australia in 15 years, and will make the Yamarna Belt Australia newest goldfield when it enters production, which is expected to be in 2018. Gruyere is a 5.6 million-ounce, low-grade (1.4 grams of gold per tonne) gold resource, considered capable of supporting a mine-life of between ten and 15 years (there is also a deeper, higher-grade zone beneath the Gruyere deposit.) Last year Gold Road raised $39 million in equity funding to fund the Gruyere project through its feasibility stage, with first production expected in 2018.

The preliminary feasibility study (PFS) for Gruyere is expected to be released in the March 2016 quarter: it is likely to talk in terms of average annual throughput of 7.5 million tonnes of ore, from an open-pit operation, for annual production of about 250,000 ounces of gold, at a capital cost of between $400 million and $500 million, at an all-in cash cost of between $1,000 and $1,100 an ounce.

The Yamarna Belt is located about 150 kilometres east of Laverton in Western Australia. Gold Road holds tenements covering about 5000 square kilometres in the area, which is historically underexplored and considered highly prospective for gold mineralisation.

A further 500,000 ounces from other parts of the tenements contribute to a gold resource of 6.1 million ounces. But Gold Road is very confident that its ground will yield similar-scale deposits to Gruyere.

At the southern end of the Yamarna belt – where Gold Road works in a 70:30 joint venture with Japan’s Sumitomo Metal Mining Company – the company has identified five potential new gold deposits. Sumitomo Metal Mining spent $5 million on exploration work to earn its stake in the South Yamarna tenements. The plan is for Sumitomo to spend an additional $3 million by the end of this year, to lift its interest to 50 per cent.

 

At the northern end – the ground wholly owned by Gold Road, which contains Gruyere – the Attila, Central Bore and Alaric targets have also been worked up to resource status. Attila is stated at 4.4 million tonnes at 1.57 grams per tonne (g/t) of gold, giving 220,000 ounces; Central Bore is considered 630,000 tonnes at 9 g/t, for 180,000 ounces; and Alaric is on the books at 850,000 tonnes at 1.69 g/t, for 50,000 ounces.

Another five hot-spots have been delineated at North Yamarna, This year, the active exploration programs – or “camp targets,” as Gold Road terms them – are South Dorothy Hills, Pacific Dunes-Corkwood and Sun River-Wanderrie, with Attila Trend, Tobin Hill, Stock Route and Romano next on the priority list.

At South Yamarna, Gold Road and Sumitomo have active programs at Riviera-Smokebush, Breelya-Toppin Hill and Metropolitan-Beefwood, with the Pebble Beach-Quandong prospect to follow.

The 2016 exploration program will begin at South Yamarna next month, starting with a drilling program on the Riviera-Smokebush camp target. Exploration activity at North Yamarna will commence in late February/early March, with testing of targets in the Sun River-Wanderrie Camp and then testing of the Washburn mineralisation at the Pacific Dunes-Corkwood camp. Regional drill testing will continue on the other Gold Camp Scale Targets within North Yamarna and the South Yamarna joint venture.

This comes after the 2015 program hit gold in every target it drilled. The results – particularly from Wanderrie (a 9.5 g/t intersection) and Corkwood (a 13.4 g/t hit) in the North Yamarna area and Smokebush (a 31.1 g/t hole) and Toppin Hill South (a 3.5 g/t intersection) in the joint venture area – confirmed that the Yamarna Belt hosts rich gold mineralisation.

Given that Gruyere was the first target tested at the northern end of Gold Road’s ground, the company’s confidence in making further discoveries – along almost 200 kilometres of strike – can be understood. Gold Road says it expects to find “multiple” deposits that turn out to deliver ten-year mine life.

Initial cash flow from Gruyere will be critical to the success of the bigger-picture Yamarna Belt operation. Developing the mining operation and processing plant at Gruyere – and a follow-up underground mine at Central Bore – is not yet funded, and will need a mix of debt and equity funding in 2017. Gold Road had net cash of $41 million at 30 September 2015, so will require a considerable funding boost in FY17, of up to $65 million.

Getting the infrastructure up and running will be important in the economics of developing the deposits that Gold Road expects to find. In the near-term, Gold Road has been helped by the downturn in the iron ore sector, which meant that exploration rigs were readily (and cheaply) available, and this should also apply to the mining and trucking equipment.

Surprisingly for an explorer-moving-to-production, capitalised at $257 million, Gold Road has significant institutional support. US mining fund Resource Capital Fund is the largest shareholder in Gold Road, with 10 per cent, while Australian fund Platypus Asset Management holds 8 per cent, US manager Van Eck Fund holds 6 per cent and New South Wales super fund State Super 5 per cent. Interestingly – in the context of corporate appeal – gold producer Independence Group owns about 4.2 per cent of the stock. Gold Road’s Gruyere is located immediately north of Independence’s flagship Tropicana mine, of which it owns 30 per cent alongside global gold producer AngloGold Ashanti.

Listed in 2006, Gold Road has shown all the extremes that hardened gold investors expect to see. The stock traded as high as 76 cents in April 2011, but was down as low as 4.3 cents in June 2013. Since then it has climbed to 37 cents as it has done the hard work on establishing the Yamarna Belt as a major new gold region.

News flow – in the form of results from the active drilling program, and developments on the feasibility study front – will drive the Gold Road share price this year. At 38 cents, you can certainly make a case for Gold Road as one of the most attractive speculative gold-explorer-becoming-producer prospects on the Australian stock market.



View More Articles By James Dunn

James was founding editor of Shares magazine, and oversaw one of the most successful magazine launches in Australia. He has also written for BRW, Personal Investor, The Age and Management Today, and was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au



 

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