In a letter to shareholders, Gold Road said they expect to spend A$15‐25 million on exploration on the Gruyere JV tenements and the 100%‐owned North Yamarna tenements in 2017. A further A$3‐4 million will fund exploration on the South Yamarna JV tenements in partnership with Sumitomo. Managing Director Ian Murray stressed that the Company would continue its disciplined and systematic approach to exploration, focusing primarily on identified Camp Scale Targets.
As 2016 draws to a close, it is worth reflecting on what has been a momentous year for Gold Road. It is also an opportune time to turn our minds to the exciting opportunities that lie ahead for the Company. The highlight of the year was striking the 50:50 joint venture deal with Gold Fields Limited in November to develop our 6.2 million
The highlight of the year was striking the 50:50 joint venture deal with Gold Fields Limited in November to develop our 6.2 million ounce Gruyere Gold Project. This was the culmination of a great deal of hard work, not only this year but in those preceding, by everyone at Gold Road. It has put us in an enviable financial position whilst retaining the upside potential we firmly believe remains within our vast Yamarna tenements.
Looking back on 2016, there have been many other notable achievements, starting with the completion of a significant transaction to buy back the Net Smelter Royalty attaching to certain North Yamarna tenements, including Gruyere, from Asarco Exploration Company Inc. in January.
This was followed by the delivery of the Gruyere Pre‐Feasibility Study in February, which confirmed the Project was financially robust and technically viable, and led the Board making recommendation that work begin immediately on a Feasibility Study. In April, our partner, Sumitomo Metal Mining Oceania Pty Ltd, lifted its interest in the South Yamarna Joint Venture to 50% after meeting its $8 million expenditure commitment nine months ahead of time. We were also able to increase the Total Mineral Resource at Gruyere to 6.2 million ounces, further distinguishing the Project as one of the largest undeveloped gold deposits in the country, and with more than two years of potential production in the Measured Resource category.
With our confidence in Gruyere growing rapidly and the Australian dollar gold price at near historical highs, we took the opportunity in April to execute a A$74 million equity raising primarily to fund the purchase of long lead time items, and the commencement of early works and Front‐End Engineering and Design for the Gruyere Project. The raising received excellent support, particularly the institutional placement component which was heavily oversubscribed, and resulted in a number of high quality institutions, including several out of North America, joining the share register.
In May the quest to move Gruyere towards production received a major boost with the signing of an historic Native Title agreement between Gold Road, the Yilka People and the Cosmo Newberry Aboriginal Corporation. Within days of the signing of this historic Native Title agreement, the Western Australian Government granted mining leases covering the Gruyere, Central Bore and Attila deposits.
As the Gruyere Feasibility Study progressed, we completed a deep diamond drill hole and a single up‐dip wedge beneath the planned Gruyere open pit, with results announced in September. This drilling confirmed the very real potential to define a large underground resource at Gruyere that could support a sub‐level caving operation. Further studies on the underground potential, and additional deep diamond drilling, are expected to take place in 2017.
Drilling programs were also completed at the YAM14, Alaric, and Attila South prospects, with results expected to either add to existing resources or contribute towards the declaration of maiden resources. These prospects are all within trucking distance of the planned Gruyere processing facility and are included in the Gruyere Joint Venture tenements. A significant drilling programme is anticipated to further follow‐up the extensional potential on all three projects.
In October the Gruyere Feasibility Study was completed to an exacting standard, allowing the Company to declare an updated Ore Reserve of 3.5 million ounces, sufficient to support average annualised production rate of 270,000 ounces over the initial 13‐year mine life (ASX announcement dated 19 October 2016).
Following completion of the Feasibility Study, the Board recommended progressing the Project to construction phase pending the successful completion of financing activities.
As you will be aware, we were running concurrent processes to evaluate the Project Finance and Joint Venture options for funding Gruyere’s development. On the Project Finance side, we completed advanced negotiations with a number of highly regarded banks to enable funding of the Project.
Ultimately though, the Gold Road Board deemed that the Joint Venture proposal presented by Gold Fields Limited represented the best opportunity to maximise value for shareholders, and we are extremely pleased to have secured them as a high quality and experienced partner.
The deal with Gold Fields clarifies the see‐through value for our share of the Project and the attaching Net Smelter Return Royalty. Adding this to the value of our cash holdings and the cash received from Gold Fields, and subtracting the expected tax on the sale of the Gruyere stake and amount for corporate overheads, gives a total value in excess of A$0.80 per share.
Looking at our current share price, it is clear the market is ascribing minimal value to the exploration upside that exists within the Gruyere Joint Venture tenements (144km2 ), the North Yamarna tenements that remain 100% owned by Gold Road (2,326km2 ), or the South Yamarna Joint Venture tenements (2,651km2 ).
With Gold Fields taking over responsibility for managing the development of Gruyere on behalf of the Joint Venture, Gold Road and its exploration team led by Executive Director ‐ Exploration & Growth Justin Osborne will be free to focus on our proven core strength of discovering and developing gold deposits on the Yamarna Greenstone Belt.
Not only that but the balance sheet strength the Gold Fields deal has delivered means we are able to allocate additional funds towards accelerating the geological evaluation of the Belt.
In 2017 we expect to spend A$15‐25 million on exploration on the Gruyere Joint Venture tenements and our 100%‐owned North Yamarna tenements, depending on exploration results. A further A$3‐4 million will fund exploration on the South Yamarna Joint Venture tenements, an amount that will be shared with Sumitomo. This essentially amounts to an exploration budget double that which was spent in 2016.
I would like to stress that we are not spending the extra money just because we have it; our approach to exploration continues to be disciplined and systematic, focusing primarily on identified Camp Scale Targets while also assessing regional potential. All drill programmes are ranked and prioritised to ensure we maintain focus on best quality targets at all times.
As we have indicated, we will also look at opportunities in other underexplored greenstone belts around the world where we might have a competitive advantage given the learnings gleaned from our Yamarna experience. We will also give consideration to capital management initiatives.
Gold Road would like to thank you for your ongoing support and contribution to our success over the past year. Rest assured that our desire to create value for you has not diminished with the Gold Fields deal and we head into 2017 invigorated and eager for more.
Managing Director and CEO