There was no fanfare as Gold Road Resources shares traded above $2 this week for the first time in the Perth company’s history.
The breakthrough was short lived. However, as the trend is your friend, Gold Road (ASX: GOR) is likely to test these levels again very soon.
More importantly, the $2 milestone – Gold Road traded as high as $2.02 on Thursday – came in the same week the company formally signed off on 12 months of production from the world-class Gruyere gold mine, its 50-50 joint venture in WA’s north-eastern Goldfields with mine operator Gold Fields of South Africa.
“It’s worth remembering that it is less than seven years since the discovery (by Gold Road) of the Gruyere orebody,” Gold Road executive director discovery and growth Justin Osborne told investors on yesterday’s June quarter conference call.
As far as milestones go, this $2 share price is symbolic only and of little interest to anyone other than the odd chartist or record-keeper who likes ceilings being smashed.
Gold Road shares were trading around $1.37 a year ago – for a 12-month return of almost 40% based on last night’s $1.90 close.
More impressively, Gold Road was trading below 10¢ prior to its Gruyere discovery in late 2013. As Gold Road reminded investors yesterday, the shareholder return since then is 1665%. Beats the return on seven years in a bank term deposit.
As Gold Road highlighted yesterday in its June quarter report, Gruyere is living up to its Tier 1 reputation.
In the three months to June 30, Gruyere produced a record 71,865 ounces and remains on track for output of between 250,000oz and 285,000oz this calendar year – the mine’s first full 12-month period in production.
Gold Road’s half-share of Gruyere’s June quarter output was achieved at all-in sustaining costs of $1233/oz, slightly up on the March figure of $1135/oz.
Gruyere produced first gold on 30 June last year. Since then, Gruyere has been steadily ramping up to its average annual 12-year mine-life output of 300,000oz.
Notwithstanding a minor tick-up in Gold Road’s guidance of full-year all-in sustaining costs to between $1150/oz to $1250/oz, investors yesterday applauded the June quarter performance.
The strong production and high profit margin enabled Gold Road to sell 28,700oz during the June quarter for $2498 apiece, using the cash flow to retire the last of the company’s debt.
“Unlike most development projects, Gruyere’s ramp-up has delivered – and slightly exceeded – to plan,” RBC analyst Paul Kaner told clients.
“We remain constructive on Gold Road as we believe the company offers investors not only potential upside to our ($2) target price but also the potential to benefit from momentum we consistently observe as companies transition into strong cash flow, as well as retaining the potential for exploration upside across a large (Yamarna) district.”
Macquarie Securities analyst Ben Crowley also highlighted the good performance at Gruyere and said Gold Road’s slightly higher costs were offset by better than expected production.
“Gold Road’s balance sheet also continues to strengthen, paying (out) the remainder of its debt facility after quarter-end,” Mr Crowley said. Macquarie’s target price is $1.70.
JPMorgan analyst Levi Spry, who has a target price of $2.15, said the strong ramp-up at Gruyere and the cash flow generation could mean that Gold Road “dividends may be on the cards post-Christmas”.
The pre-Christmas investor cheer was this week also felt by another gold stock, Cardinal Resources (ASX: CDV), which is in the middle of a tug-of-war between rival suitors Shandong Gold and Nord Gold.
After Nord Gold in March kicked off the bidding war for Cardinal, the owner of the world-scale Namdini gold project in Ghana, the battle quickly warmed up.
Namdini contains a proven and probable reserve of 5.1 million ounces, which will underpin a sizeable mine life once development gets underway. It is similar in size to the Gruyere discovery made by Gold Road
Nord Gold’s initial cash approach valued Cardinal at 45.775¢ a share. Shandong countered with 60¢ and won the Cardinal board’s endorsement before Nord Gold returned with an offer of 66¢.
On Thursday, Cardinal announced that Shandong had improved its offer to 70¢.
Cardinal closed at 74.5¢ yesterday – for a market capitalisation of $384 million and a far cry from levels about 36¢ a year ago.
As Gruyere and Namdini have demonstrated, world-scale gold deposits will deliver precious rewards.
