Investors have rediscovered their sparkle for Australia’s newest gold producer Gold Road Resources (ASX: GOR), just in time for the annual Telethon charity weekend in Perth that raises funds for kids who are doing it tough and deserve a break.
Fittingly, to cap off a week that began with Gold Road reporting better-than-expected maiden production numbers from the world-class Gruyere gold mine in WA’s north-eastern Goldfields, the company and its Gruyere 50-50 JV partner Gold Fields donated a 1kg gold bar worth $72,000 to Telethon.
The handover of the bar, which will be auctioned off to the highest bidder at Telethon’s flagship ball tonight, was made yesterday in the presence of Little Telethon Stars – the real heroes – Callum Berrisford and Eva Molloy (flanked in the photo by Gold Fields executive vice president Stuart Mathews (left) and Gold Road Resources managing director Duncan Gibbs (right)).
“As one of the leaders of the next generation of Australian gold miners, we are naturally drawn to the next generation of Australians, so what better way to help the children of today enjoy a better life than by supporting Telethon,” Gibbs said yesterday.
The Telethon gift was a nice touch from the JV partners, who announced in June that first gold had been poured at Gruyere to complete proof-of-concept of the $621 million mine development 1000km north-east of Perth.
Gold Road has had an interesting 2019 as investors charted and de-risked the final chapter of this Perth company’s journey from discoverer of the world-class Gruyere deposit to mine developer to gold producer.
Worth 66.7¢ at the end of 2018, Gold Road shares soared as high as $1.645 in August for a market capitalisation of $1.4 billion before some of the steam came out of ASX gold stocks in general, and Gold Road more specifically following the exit of its Gruyere JV partner from the register. Gold Fields had owned 9.9% of Gold Road, acquired mostly around 86¢ a share in 2017, before offloading the entire stake for $1.45 a pop two months ago.
There was a mixed reaction in the marketplace to Gold Fields’ exit. Some investors thought it would rob Gold Road of a realistic takeover premium; others mused that Gold Fields was never going to take over Gold Road so its exit could pave the way for a real suitor to emerge.
Either way, Gold Road’s share price had retreated to $1.03 by the start of this week.
Then came news of Gruyere’s maiden quarterly output, publicised in Gold Road’s September quarter report on Tuesday. In short:
· Gruyere’s ramp-up to its 300,000oz per year average profile is progressing well;
· Commercial production was declared at the end of September, three months after first gold was poured;
· Gruyere produced 29,107oz (on a 100% basis) in the September quarter;
· Gruyere’s CY19 guidance was reaffirmed at the upper end of the 75,000oz to 100,000oz range announced in June;
· Guidance on all-in sustaining costs was reaffirmed at between $1050/oz and $1150/oz; and
· Gold Road sold 12,461oz of its Gruyere production share for September for an average $2052/oz, generating cash flow that reduced the company’s net debt to only $9.3 million.
Tuesday’s quarterly news was followed by a flurry of positive analyst notes to reinforce Gold Road’s position as the most likely to knock on the door of Australia’s G5 of gold stars – Northern Star Resources, Evolution Mining, Regis Resources, Saracen Mineral Holdings and St Barbara.
Canaccord Genuity analyst Tim McCormack upgraded his Gold Road target price from $1.35 to $1.60 per share.
“The (Gold Road) share price has been weak over the last three months (-25%) and we see current levels as a good buying opportunity given headroom in financing facility (~A$70m undrawn), de-risked production (ramp-up on track, grade control drilled), and pending transition to free cash flow generation,” McCormack told clients alongside reiterating his speculative buy recommendation.
Macquarie Securities analyst Ben Crowley, who has a target price of $1.60, highlighted Gruyere’s top-end-of-guidance news and Gold Road’s balance sheet strength for justifying his outperform recommendation.
“Gruyere’s mining physicals were strong compared to our expectations while processing was broadly in line. Importantly, mined volumes and recoveries are tracking ahead of plan,” Crowley told clients.
RBC analyst Paul Hissey promoted Gold Road from sector perform to top pick status and increased his target price from $1.40 to $1.50.
“We believe the recent fall in the share price is a function of slowing momentum in the gold price rather than stock specific. Meanwhile, the gold price hovers (still) near all-time A$/oz records and Gruyere is all but de-risked. Investors may not get a better opportunity for exposure to a new, high-quality asset,” Hissey said.
Investors took note of the analysts’ bullish recommendations.
Gold Road shares closed at $1.18 yesterday, a gain of 15¢ or 15% for the week when the S&P-ASX gold index was flat and the S&P-ASX 200 benchmark improved just 2%.
Telethon wasn’t the only golden winner this week.