Market Quick To Look Past Dacian Speed Bump For Long-Term Value

The WA gold sector has not exactly been shooting the lights out of late.

Despite the local gold price trading at a near-record $1850 an oz, there have been a couple of small producers go out the back door and some that look they might any time soon.

Why, even one of the big boys, St Barbara, has got in the act, with its share price resetting 30% lower in one hit last week when it revealed lower long-run production figures for its Gwalia mine.

For a moment, it looked as if newbie Mt Morgans gold producer Dacian (DCN) might have contributed to the gloomy reports coming out of the sector of late.

And at first glance, Monday’s guidance that gold production in the now- finishing March quarter would be 36,000-38,000 oz at $A1400-$1500 an oz was certainly gloomy.

It means getting Mt Morgan to a steady state run-rate of more than 200,000 oz a year remained elusive in the quarter due to lower-than-expected underground equipment availability delaying access to higher-grade underground stopes.

But the “good” news from Dacian was that it expects the 200,000 ozpa run rate will be achieved in the final (June) quarter, with output of 50,000-55,000 oz at much lower AISC of $A1,050-$A1150 an oz.

It’s why, after getting as low $2.27 on the first reaction to the weaker March quarter, Dacian bounced back to $2.58 on Thursday without any particular help from gold price moves.

That’s a handy four-day turn for the good in a leading gold issue. Helping it along is the assumption that should Mt Morgans become a consistent 200,000 oz a year producer from here on, it is worth more than its current price.

Macquarie has a $3 price target on the stock, saying a 200,000 oz-plus run-rate in the June quarter “driven by maturing underground mining fronts and increased open-pit grades is encouraging”.

Plus, Peak Resources among the juniors poised to jump into rare earths spotlight. Read more +

Barry Fitzgerald

About Barry Fitzgerald

Barry Fitzgerald has covered the resources industry for 30 years. His column highlights the issues, opportunities and challenges for small and mid-cap resources stocks - most recently penned his column for The Australian newspaper and before that, The Age.

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