When Gold Road Resources (ASX:GOR) outlined its plan to build a tier one gold mine in Western Australia at the Noosa Mining & Exploration conference in 2013, it was trading at only around 5 Australian cents per share. This week it returned to the same conference as a fully funded $1 billion-Australian-dollars-plus gold producer with a share price of around $1.36 and major investment fund Black Rock aggressively buying up shares and currently holding an 11 per cent stake.
One-third of Gold Road stock is held at the retail level.
Gold Road’s Gruyere mine in the Yamarna Greenstone Belt in Western Australia – a 50-50 joint venture with sector major Goldfields – poured its first gold two weeks ago and is ramping up to an average 300,000 ounces per year over a 12-year mine life. With all-in sustaining costs of $1,025 Australian dollars per ounce, Gruyere sits well down on the cost curve.
“We’re set up to ramp up and deliver the cash flow we’ve been promising for five and a half years,” Gold Road’s investor relations leader Duncan Hughes told the conference.
“We are also well aware that we need to give growth and returns.”
Gruyere is able to keep mining costs down due to its low 2.7 to 1 waste-to-ore strip ratio and simple off-the-shelf processing technique employing a large gravity CIL plant.
Importantly, Gold Road holds approximately 6,000km2 of exploration interests in the Yamarna Greenstone Belt, which currently hosts gold resources of 6.6 million ounce, including 5.8 million ounces at the Gruyere deposit.
But Gold Road’s board is aware there isn’t much use in digging a mine unless shareholders see returns.
A gold price of around $1,840 Australian dollars per ounce leaves 25-30 cents of each dollar as free cash flow, after paying off a small amount of debt.
That’s free cash flow that can potentially add value to shareholders via investment in growth and potential for dividends, according to Hughes.
“We haven’t forgotten that we have $70 million Australian dollars of franking credits from the sale of half the project to Goldfields, which should be of interest to Australian investors,” Hughes said. (Franking credits are a type of tax credit that allows Australian companies to pass on tax paid at the company level to shareholders. The benefits are these franking credits can be used to reduce income tax paid on dividends or potentially be received as a tax refund.)
Gold Road is now targeting 1 million-ounce discoveries on ground it owns 100 per cent, with over 150 targets currently defined in its pipeline. It has one of Australia’s largest greenfields gold exploration budgets of $20 million Australian dollars.
Jim Regan is a former Reuters finance and commodities reporter, and is a contributor to the Investor Insight content team. Cannings purple is proud to be a sponsor of the Noosa Mining Conference.
