Gold Mining Journal, Issue 154
There is suddenly a spring in the step of the Australian gold miners thanks to six months of widening cash margins and now gold explorers are beginning to find some joy as well.
The last three months have seen capital raisings increase and drilling rates amped up as investors warm to gold explorers after a long hostile period.
The question for me is whether these explorers are coming out of the prolonged downturn match-fit and ready for discovery. Are they leaner and smarter than they entered it or just emaciated?
Certainly, corporate overheads have been trimmed in recent years and companies have learnt to do more with less in these straitening times but how limiting will that prove when junior companies have to rapidly expand in the face of investor demand?
Much has changed since the last sustained gold exploration boom from 2015-2018. That period saw juniors, mid-tiers and even majors all increasing their exploration budgets in an effort to fill the gaping holes in the development pipeline created by the previous trough.
This time around, despite generating record amounts of free cashflow thanks to the gold price’s seemingly inexorable ascent, most miners have become insular in their exploration approach. Few are willing to roll the dice on greenfields exploration, preferring almost exclusively to stick to near-mine targets over the more ambitious greenfields ones.
Northern Star Resources Ltd’s Stuart Tonkin admits there is a reluctance to push the exploration envelope too far in our interview with him on page 24.
“Are we going to be a true for greenfields explorer? We probably haven’t had huge success, or even given it a fair investment because the returns were so much greater around our producing assets,” Tonkin said.
Others would like to head out into frontier exploration but don’t necessarily have the wherewithal.
Ramelius Resources Ltd’s Mark Zeptner confirmed the company’s acquisition of the Rebecca-Roe tenements was in-part designed to expand its early-stage exploration horizons while Gold Road Resources Ltd general manager discovery Andrew Tyrrell has been given a mandate to reboot the company’s greenfields exploration credentials after nearly a decade focused on Gruyere’s development, construction and production.
Instead, the established producers have relied on the juniors to make the discoveries, but with their attention largely drawn to lithium, rare earths, niobium or whichever other critical mineral is in vogue, are they prepared for a switch to gold?
Every explorer has to be able to strike a balance between being nimble and adjusting to circumstances, and settling on assets which will add long-term value.
It is understandable many juniors have switched their focus from gold to lithium but now the tide is turning, how can they shift back?
My gut feeling is the reversal will be easier than the initial transformation. Most West Australian geologists were gold explorers for years before their flirtation with lithium so their reconversion shouldn’t be difficult.
What may change is the kind of gold deposits they hunt for.
For 20 years, the accepted wisdom in the junior gold sector was that companies should pursue deposits with a 1 moz reserve and a 10-year mine life, enough to justify a standalone mill.
I think the next generation of discoveries will lead to different outcomes. There are now almost as many mills in the Eastern Goldfields as deposits and investors are still wary of juniors who go it alone into production given how many failures we have seen in the past decade.
At the same time, miners are looking for supplemental high-grade feed to help improve margins, as witnessed by Northern Star’s 2018 acquisition of Echo Resources or Ramelius’ recent purchase of Musgrave Minerals.
Perhaps now, companies recognise shareholders are better served by divesting assets and/or companies early – either through cash and/or scrip, rather than waiting on the longer and more uncertain returns associated with standalone developments.