Yamarna; building and exploring in unison
Gold Road (ASX:GOR) is continuing to prove-up the potential of its Yamarna Belt as a gold host. The company is progressing its Gruyere mine (Gold Road ‘s interest 50%) toward production and is in the meantime enjoying ongoing exploration success across the Yamarna Belt. The structure of the Gruyere mine site joint venture with Gold Fields has enabled the company to advance its exploration. The following figure shows the location of the company’s projects (highlighted):
Source: Gold Road Resources (ASX:GOR)
First to the construction at Gruyere, where first gold is expected in the June quarter 2019. Abnormal weather events during construction have caused a delay in first gold from the March quarter 2019 to the following quarter.
Unfortunately, abnormal weather has also caused the cost to slip, with the estimate to completion now forecast to be toward the upper end of the range of A$506 million to A$585 million.
The cost estimate does include a A$30 million contingency. Additional allowances have been made for potential further wet weather events impacting on the site. The following figure shows the Gruyere construction:
Source: Gold Road Resources (ASX:GOR)
At the end of April, the company cited that 84% of engineering was completed, 44% of construction was completed and 17% of engineering, procurement and construction was completed. The mine is expected to deliver 270,000 ounces of gold per annum over an initial 13-year mine life. All-in sustaining costs are forecast to be A$950 an ounce.
The current Australian gold price is trading around A$1,670 an ounce. At this price level, operating margins will be good.
With building well underway now at Gruyere, the company has continued to drill-out the Yamarna Belt. The focus has been on the Smokebush and Wanderries gold camps and the Tamerlane prospect. The following figure shows the known potential gold camps along the Yamarna belt, with Smokebush, Wanderrie and Tamerlane highlighted (au – gold, g/t – grams per tonne, m – million):
Source: Gold Road Resources (ASX:GOR)
The results from the three sites have added further impetus to the Yamarna Belt hosting additional stand-alone economic deposits or groups of deposits.
The results from recent drilling are shown in the prior figure for the three sites. The results from Smokebush and Wanderrie are significant as to location, gold grade, depth and seam with Tamerlane being a very interesting hit. The Smokebush intersections are at depths of 61 metres to 156 metres and Wanderrie at 152 metres.
On the Gruyere joint venture ground the company has been conduction infill drilling at its Golden Highway gold camp with a focus on the Montague prospect. The results are also shown in the prior figure and are very significant as to gold grade, seam width, depth and location. The intersections range from nine metres deep to 37 metres deep. A mineral resource will likely follow from these results, with 2019 slated for a maiden resource to be declared. The gold show at Tamerlane becomes just a bit more interesting, being located between two developing gold deposits.
One could imagine a super pit with a comparison to the Kalgoorlie super pit which is 3.5 kilometres long and 1.5 kilometres wide with a depth of 600 metres and is still growing.
Future work will see further drilling at Smokebush after analysis of the current results. Follow-up drilling will also be conducted across sites, including Tamerlane, Toppin Hill, Bloodwood and Stoc Route. We certainly look forward to reviewing these results as they come in.
Turning to the charts, and on the daily, prices have entered a corrective phase of the overall technical cycle after printing a recent high of $0.8450 in January. A layer of support between $0.745 and $0.75 has subsequently given way. Some consolidation would however be healthy because it forms part of a broader uptrend. Prices have also dipped below the 50 day and 200 day moving averages, although downside support remains from the upward slowing trend line at $0.75.
At 31 March 2018, the company had a cash resource of A$224 million and carried no debt. With the cash resources at hand and a newly established financing facility of A$150 million, the company has the resources to complete the construction of Gruyere and conduct an extensive exploration programme. The company will provide greater clarity around its cash position at 30 June 2018, with the release of its June quarter activities report prior to the end of July 2018. We, in the meantime have no concerns over the company’s liquidity.
The successful return to the southern portion of the Yamarna Belt is a real value add event, as Sumitomo walking away from the joint venture may have deflated investor interest in the region. We believe this will now not be the case, given the return to drilling and the success the company has had.
The success of drilling in the Northern Yamarna is certainly, we believe, pointing to value-adding opportunities for the company. Especially as the company has a number of gold camps that have been identified and are yet to be explored.
With reference to the monthly chart, support was respected at the long-term uptrend line (upward sloping green line) of $0.50 in March 2017, and around $0.69 last month. This is a positive development, and has confirmed the uptrend in place since 2014. Looking forward, the long-term technical outlook has strengthened, due to the share price holding (on a monthly-basis) above the 78.6% Fibonacci retracement of $0.70 this month. The next upside target of $0.82, being the 127.2% Fibonacci extension, has been achieved, but prices have backed away. Overall, the long-term uptrend remains firmly intact, as evident from the series of higher lows and higher highs in formation since 2013. Consequently, this would likely translate to further gains over the broader time horizon.
Duplicating this success at Wadderin and Lake Grace are both potential blue sky future shareholder value-add opportunities. With Gruyere progressing toward commercial production and with a full cash chest to continue with what has been a successful exploration programme, deep de-risking is close at hand.
Consequently, we continue to recommendation Gold Road Resources (ASX:GOR) as a buy for Members who do not have exposure to the stock.
Disclosure: Gold Road Resources (ASX:GOR) is held within the Fat Prophets Mining and Resources portfolio.
