Gold Road is a gold explorer that’s aggressively evaluating the large-scale resource potential of its Yamarna project in WA. The company’s production and corporate credentials have been significantly enhanced.
| Corporate Details |  |
| Status: Emerging Producer | |
| Size: Small Cap | |
| Commodity Exposure: Gold | |
| Share Price: $0.45 | |
| 12-month Range: $0.15 – $0.475 | |
| Shares: 595m, Options: 19m | |
| Top 20: 52% | |
| Net Cash: $19m | |
| Market Value: $268m |
| Key Parameters | Rating (✓out of 5) | Quarterly Statistics |
| Management Quality | ✓✓✓✓✓ | Q1 2015 Exploration Spend: $3.06m |
| Financial Security | ✓✓✓✓✓ | Q1 2015 Admin Spend: $0.843m |
| Project Quality | ✓✓✓✓✓ | Exploration Spend 78%, Admin Spend 22% |
| Exploration / Resource Potential | ✓✓✓✓✓ | Q2 2015 Forecast Exploration Spend: $7.3m |
| Project Risk | ✓✓✓✓✓ | Q2 2015 Forecast Admin Spend: $0.8m |
We introduced Gold Road Resources to our Portfolio back in December 2010, based upon the ‘big picture’ potential of its Yamarna regional project to host a new, multi-million-ounce gold belt. The company has delivered on our expectations, with intensive drilling over recent years delivering robust mineralized grades and sizeable widths that are amongst the best seen within the Australian gold sector for the past several decades. All this has translated into a +5 million-ounce resource base.
What makes Gold Road’s exploration achievements even more remarkable is that they have occurred against a background of relative mediocrity over the past decade in terms of grassroots exploration discoveries within the Australian gold sector. Given the vast sums of exploration dollars that have been raised and expended by countless junior hopefuls, there isn’t a lot to show for it in terms of sizeable new discoveries. Yamarna is one of the rare exceptions and GOR’s share price reflects this.
Gold Road’s Yamarna project and Independence/Anglogold’s Tropicana project are therefore hugely significant from an Australian exploration perspective. Gold Road over the past 18 months has begun to generate strong market recognition on the back of its outstanding regional exploration success. This has been reflected in the company’s strong share price performance over the past two years, increasing from below $0.05 to a recent high of $0.475 – a price surge of more than 850%.
Recent Activity
Completion of Gruyere PFS resource drilling
Gold Road has announced the completion of the drilling designed to upgrade the Gruyere Gold Mineral Resource for ongoing Pre‐Feasibility Studies (PFS) and to extend the existing resource base.
Within a 13- week period from late-February to mid‐May 2015, a total of 52 drill holes were completed for 19,956 metres of drilling. In total the Gruyere Deposit has had 66,000 metres of RC (41,000 metres) and diamond (25,000 metres) drilling since its discovery in September 2013.
The resource infill and extension drilling program had two aims: firstly, to drill approximately 80 million tonnes of mineral inventory to an Indicated level of confidence, which would provide appropriate information for the ongoing Gruyere PFS; and secondly, targeting extensions to the existing Resource model, with drilling completed to an Inferred level of confidence based on the same classification parameters used in the 2014 Mineral Resource.
The extensional aspect to the program was guided using a A$1,700/oz pit shell based on the existing 2014 Mineral Resource as a basis. The program was completed on 19 May and comprised of 52 holes for 19,956 metres. Assay results have been received for 28 drill holes, with assays pending for the remaining 24 drill holes.
Technical Significance
The new data provides an excellent geological framework for ongoing resource work. Assays received have confirmed that the width and grade of Gruyere mineralisation at depth is consistent with the shallower levels of the deposit, whilst also adding significant confidence to the geological interpretation. Grade continuity across the full width of the host Gruyere Porphyry has been confirmed by multiple holes.
The new detailed geological information, in conjunction with new and existing assay and geological data, has also allowed Gold Road to improve the overall geological model with a variety of refinements. The addition of consistent drilling information at depth has confirmed a very strong relationship between the gold mineralization and the Dorothy Hills Shear Zone, as the major control on orientation of the Gruyere deposit.
A strong sub‐vertical control parallels the shear fabric and defines a highly continuous zone of mineralisation aligned to the strike and dip of the Gruyere Porphyry within the Dorothy Hills Shear Zone. This main orientation is invoked in ongoing resource modelling and is expected to provide an improved resource estimate with exceptional continuity along strike with a steep easterly dip.
Gold Road is now finalising a Mineral Resource update for the Gruyere deposit, based on assays received up to 15 May 2015. This model will be used for the ongoing PFS Stage 1 program, which is assessing various options to identify the single-case optimal project size and scale to progress to final PFS. The Mineral Resource update is being finalised and due for release within the coming weeks.
Other Recent Activity
In January Gold Road today announced completion of the development Scoping Study for its Gruyere Project, which indicated an economically robust gold project. The proposed development comprises a large-scale, open-pit mine at Gruyere, a narrow-vein underground mine at Central Bore, along with a conventional 5Mtpa Carbon In Leach (CIL) processing facility at Gruyere (with 7.5Mtpa and 10Mtpa scenarios also investigated)
Key Outcomes:
- Base-Case of 5Mtpa throughput (with 7.5Mtpa and 10Mtpa scenarios investigated)
- Base-Case key metrics – projections and estimates @ A$1,350/oz
- Average gold production of 190koz recovered p.a. over 11-year life of mine (LOM) for 2.1Moz total production recovered
- Gold revenue of A$2.8 billion over LOM ‐ further upside based on recent gold price increases
- Average Cash Cost of A$838/oz and All-In Sustaining Cost (AISC) of A$916/oz
- Net pre‐tax cash flow of more than A$550 million over LOM (after capital)
- All‐inclusive pre‐production capital cost estimated at A$360 million
- More than 70% of forecast production target is in Measured and Indicated Resource categories
- Average LOM strip ratio (waste:ore) of 1.6:1
- Board has approves a Pre‐Feasibility Study to commence immediately, with Stage 1 to focus on optimal plant size and throughput
The Base-Case average annual production following ramp‐up is estimated to be 190koz pa of gold over an initial mine life of 11 years, positioning the company as a potentially significant gold producer. At a gold price of A$1,350/oz, the Base-Case generates average net pre‐tax cash flows (after sustaining capex and royalties) of more than A$80 million annually once in steady production.
Summary
The Gruyere discovery has grown rapidly in size within a very short timeframe and the Scoping Study has confirmed our previous estimates that suggested a bulk-mining opportunity of around 200,000 oz p.a., given its horizontal width, consistent mineralisation and shallow depth. The upside remains huge, as the Yamarna greenstone belt extends for more than 200km in strike length; mineralisation starts from surface and has now been extended from previously proven 500 metres below surface, to almost 750 metres. Corporate interest in Gold Road has been reinforced by Independence Group’s (ASX: IGO) recent acquisition of just under a 4% per stake from Canadian group Minco for $0.385 per share. We already maintain a very strong Portfolio exposure – including numerous Speculative Buy calls under $0.12 – so we retain a Hold recommendation for existing investors; however, we continue to rate the stock as a Speculative Buy for those investors without existing exposure, given growing production and corporate interest.
