In this week’s edition of Investment Ideas, Barry Dawes, Executive Chairman of Martin Place Securities examines a number of gold mining stocks.
Barry Dawes, Executive Chairman of Martin Place Securities
Northern Star (ASX: NST)
NST as an Australian gold miner has been an excellent performer over the past few years with outstanding operations that have provided low cost mining and a production rate of over 600kozpa. The Company has delivered good earnings, strong cashflows, a large cash balance and a growing dividend stream.
Its internal strengths have delivered share price performance of new all time highs when many of its local and international peers have been making multi year lows.
The magic associated with the company’s astute asset purchases and strong technical capabilities has now continued to the international arena with the acquisition of a high grade operating mine in Alaska. This mine has a history of ~300kozpa output and an exploration potential that should see a significant extension of mine life.
The acquisition price of A$347m (US$260m) made up of ~50/50 cash and new equity from a capital raising has been well exceeded by the market place by pushing the NST price up by almost A$900m.
The acquisition has set NST on a trajectory that is likely to see gold output reach 1mozpa in the next year or so.
A rerating of NST is likely such that NST should see much higher share prices in the years ahead.
Kirkland Lake (ASX: KLA)
A new entrant to the ASX in Canadian based Kirkland Lake (KLA.ASX) offers investors another high quality gold producer with long term gold output growth in some of the world’s highest grade mines.
KLA acquired some Australian assets in Victoria and also in the Northern Territory.
The key Fosterville mine NE of Bendigo has a magnificent 1.16moz @ 61g/t that will steadily drive gold output to over 500kozpa within the next few years at costs of under US$300/oz and providing as much as A$400mpa in pretax earnings.
The Norther Territory gold mining and production assets are on standby while new resources are being shaped up and recent high grade discoveries there are causing an encouraging rethink of the potential in that goldfield.
Kirkland Lake has also backed Australia with an 18.6% in Canadian-listed Novo Resources that is developing Australia’s version of the great Witwatersrand gold deposits in the Pilbara. Early days here but the potential is very large.
KLA’s Canadian operations are centred upon the Macassa gold mine in Ontario where it has another of the world’s highest grade large mines. With reserve grades over 20g/t and a steady expansion programme to take output over 400kozpa and then 500kozpa over the next 5-8 years this will be another low cost and very profitable mine.
KLA has other gold growing mining operations in Ontario producing over 130ozpa through a central 1mtpa mil that has 30% unused capacity with a medium term strategic view.
KLA is a bigger version of Australia’s NST.
KLA made an alltime high in August 2018 when most of its peers were making multi year lows and this is a fair reflection of the powerful earning stream that is being built up by this company. A higher gold price would add substantially to KLA’s future.
Catalyst Metals (ASX: CYL)
Bendigo in Victoria was Australia’s largest goldfield in the 1800 and 1900s and has historic production of 22moz @ 15g/t. Activity to reopen the old goldfield failed in the current century but more recent exploration work to the north of Bendigo along the Whitelaw Fault has identified high grade mineralisation beneath shallow sedimentary cover of the Murray Basin that prevented access to mineralised rock by earlier explorers and miners.
Catalyst Metals (CYL.ASX) has worked on a series of tenements that give it blanket coverage of much of the Whitelaw-Tandarra Fault Corridor over a strike length of over 75km. CYL considers it will be able to confirm a major discovery and become a dominant player in a world class gold province.
At the 6km x 2.5km Four Eagles Project, CYL has Gina Rhinehart’s Hancock Prospecting as a 50% JV partner and has recorded many impressive intersections including 16m @ 63g/t and is well on its way to proving a resource. Intersections keep improving in grade as the prospect become better understood and the potential for further mineralisation along strike and at depth has been enhanced. Four known zones of mineralisation exist at Discovery, Hayamni and Boyd’s Dam with the new Cunneens being the fourth.
CYL sees great similarity for Hayanmi with the geology at Fosterville where Kirkland Lake’s 1.16moz 61g/t Swan zone is now being mined.
CYL has also farmed into and earned 51% of the Tandarra Gold Project from Navarre (NML.ASX) where the Tomorrow Zone is exhibiting impressive near surface mineralisation and also a very promising deeper zone. At least 10 and as much as 20km of structure remains untested.
The remainder of the tenements are 100% CYL including a newly acquired EL006507 north of Fosterville.
SBM.ASX owns 16% of CYL.