For the past five years, development of the Gruyere gold deposit in Western Australia’s Yilgarn region has been the key focus for Perth-based Gold Road Resources (ASX: GOR). Journalist James Regan explores the company’s road ahead as exploration at another project gains traction.
For the past five years, development of the Gruyere gold deposit in Western Australia’s Yilgarn region has been the key focus for Perth-based Gold Road Resources (ASX: GOR). And with a projected 13-year mine life yielding an average 270,000 ounces annually, who could blame them?
Now with Gruyere set to produce first gold around April 2019 at a forecast lowest quartile ASIC cost of $950 per ounce – providing all-important cash flow – Gold Road is turning to its next taxi off the rank.
This year the company will spend $16.8 million of a $22.4 million exploration budget readying its Yamarna project in the under-explored greenstone belt to the east of the Yilgarn.
Yamarna holds promise, not the least of which because of its more than 180 kilometres of strike extent on the greenstone belt. That’s roughly the same distance from Kalgoorlie to Norseman, where 160 million ounces of gold have come out of the ground over the years.
Gold Road to date has recorded 6.5 million ounces of reserves at Yamarna, and John Donaldson, general manager of geology, this week told the RIU Resources investment conference in Sydney “We believe we have a long way to go”.
Importantly, Gold Road’s recent purchase of Sumitomo’ Metal’s 50 percent interest in the South Yamarna project has opened up the south end of the tenements to aggressive exploration by the company. This also signals Gold Road’s intent to own the Yamarna project outright. Gruyere is a 50-50 joint venture with South African blue-chip Gold Fields Ltd.
Yamarna is where the lion’s share of the $16.8 million in exploration funds outside of Gruyere will be spent. Rightfully so if Gold Road is to fulfil its goal of repeating at Yamarna what is has done at Gruyere.
Gruyere is the last of only a trio of gold mines in or nearing production status. The others are Dacian Gold, which commenced production in late March, and Gascoyne Resources set to join the producers’ ranks later this month.
The key aim at Yamarna is to progress two targets to the resource drilling stage in 2019, with funding to come from Gruyere’s cash flow. This is being aided by 70,000 ounces of gold hedges at an average price of $1,720 per ounce.
Gold Road has also locked down financing facilities totalling $150 million. As of the end of March, the engineering work for Gruyere was 84 percent complete, while construction was 44 percent complete.
Gold Road’s commitment to use Gruyere to pay for more exploration reflects management’s belief Yamarna is highly prospective at a time when exploration spending across the sector is under scrutiny.
While exploration globally remains at historically high levels, S&P Global Market Intelligence’s annual Gold Discoveries report shows that gold exploration budgets peaked in 2012.
Explorers have allocated US$54.3 billion to gold exploration over the past decade, up 60 percent over the preceding 18 years, but with a lot less to show for it.
S&P data shows just 21.5 million ounces have been discovered in 41 finds over the past decade, compared with 1.72 billion ounces in 222 discoveries in the preceding 18 years.
Gruyere, one of the largest undeveloped gold deposits in Australia, has faced its own challenges, which the partners are facing head on.
A provisional forecast released by Gold Road shows that first gold is likely early in the June 2019 quarter, rather than at the end of the March 2019 quarter as previously forecast. In addition, the capital cost estimate has increased, with the provisional forecast cost moving to the upper end of the forecast range of $506 ‐ $585 million ($532 million ‐5% / +10%), which includes a contingency of approximately $30 million.
Still, the appetite for gold on both institutional and retail levels shows no signs of abating, encouraging explorers to keep drilling.
Exchange traded funds had their fifth consecutive quarter of gold inflows, growing by 32.4 million tonnes, according to this week’s report by the World Gold Council.
One standout was gold holdings by the world’s central banks, up 42 percent to 116.5 tonnes. Worldwide demand for gold in jewellery was steady at 487.7 tonnes. Demand for gold in the technology sector continues to improve, as well. The wireless sector is identified as a key area of growth as facial recognition is increasingly deployed in smartphones, gaming consoles and security systems.
Gold prices are up 10 percent in Australian dollars and 7 percent in U.S. dollars this year.