Few will dispute the clouds gathering over the world economy are looking ominous. No wonder, then, that the gold price is hovering around historic highs of $US2,000 an ounce to underscore its safe-haven investment credentials.
Underscoring the darkening cloud cover, the World Gold Council has just released its latest report on gold demand trends. Interestingly, while there was a significant drop-off in gold demand from the ETF market, central bank buying soared.
In the three months to March 31, central banks and other official institutions bought 228 tonnes of the precious metal – worth about $US14.6 billion today. The tally was almost three times the 82 tonnes purchased by central banks a year earlier, highlighting that government officials are cautious.
And the opposite held true for gold demand from the technology sector, which in the March 2022 quarter stood at 81 tonnes but a year later had dropped more than 12 per cent to 70 tonnes – that’s the impact of an uncertain global economic climate.
All this doom and gloom should be good for gold miners that can demonstrate they have quality mining and exploration assets, a firm handle on costs to deliver sustainable free cashflow and an unwavering commitment to delivering superior shareholder returns.
Gold Road Resources (ASX: GOR) claimed a tick alongside those criteria when it signed off on its 2022 year at the company’s AGM on Thursday.
The Perth-based, mid-tier producer’s performance over the past 12 months – shares are up more than 40 per cent while shareholders also benefited from two dividend payouts – was strong and not surprisingly the five resolutions at Thursday’s AGM were waved through by 97.74 per cent, 99.01 per cent, 99.11 per cent, 99.21 per cent and 99.21 per cent of voters.
In this day and age where investors are increasingly using AGMs to voice their displeasure at the board, pay, strategy or performance, the support for Gold Road was as close to unanimous as it gets.
And there is a lot to like about the Gold Road story, as the leadership team highlighted at the AGM.
Production from its flagship asset – a 50 per cent share of the world-class Gruyere gold mine in Western Australia’s north-eastern Goldfields – is steadily rising, as is Gold Road’s free cash flow.
In 2022, Gruyere produced 314,647 ounces – Gold Road’s share of gold sold was 156,426 ounces – and the mine is forecast to produce 340,000 to 370,000 ounces this year. Another decade of low-risk gold production is locked in and there is excitement about the potential to deepen the Gruyere pit or even go underground.
Gold Road’s all-in-sustaining costs last year for its share of ounces were $1,447/oz and allowed the company to generate free cash flow of $77.5 million. Although Gold Road’s AISC guidance for this year is up at $1,540-1,660/oz – in part because of the cost of adding a third pebble crusher to Gruyere’s process circuit as well as a scheduled tailings dam lift – the company will remain one of the lowest-cost gold producers on the ASX.
The big focus for investors, of course, has been on Gold Road’s progress to add a second string to a bow reliant on Gruyere.
Gold Road has made clear its focus on adding a second mine to its portfolio. And as the company highlighted at the AGM, a range of increasingly exciting options are emerging.
First and foremost is Gold Road’s 19.73 per cent stake in De Grey Mining (ASX: DEG), which owns the undeveloped Hemi gold project in WA’s Pilbara. Hemi – large, low-grade and open pit-able like Gruyere – is the best gold discovery in Australia since Gruyere. De Grey is expected to release Hemi’s definitive feasibility study mid-year.
Gold Road has also been busy on the exploration front over the past year.
Once focused almost exclusively on drilling around Gruyere, Gold Road today has a portfolio that includes tenements in the Pilbara next to Hemi as well as newly acquired projects west of Townsville in northern Queensland – Galloway and Greenvale.
Gold Road has budgeted $30 million on exploration across 2023 – drilling continues in the Southern Yamarna project area (south of Gruyere) while the company hopes to be on the ground in the Pilbara and Queensland later this year.
On top of the base case of rising, profitable production at Gruyere, shareholders are clearly excited about what Gold Road might deliver this year.