Gold Road Resources Ltd (ASX:GOR) (FRA:E6Q) (OTCMKTS:ELKMF) is focused on unlocking near-term cashflow opportunities at its flagship new West Australian gold mine Gruyere, which is expected to produce first gold in the June 2019 quarter.
The West Perth-based mine developer views the fully-funded Tier 1 global gold mine as a near-term high-margin production opportunity.
Gold Road’s focus is to pioneer development of Australia’s newest goldfield, the Yamarna Belt, 200 kilometres east of Laverton where it plans to spend $17-20 million on exploration this year.
Gruyere Gold Project is in the central hub of Gold Road’s Yamarna tenements on the gold belt and is tipped to be Australia’s next major gold mine.
The company plans to produce gold by mid-year this year, employing a team of about 350 fly-in, fly-out workers with many on an eight-day-on, six-day-off roster.
Gold Road discovered Gruyere on the South Dorothy Hills Trend in October 2013 and later partnered with Gold Fields Limited (NYSE:GFI) (JSE:GFI) (SWX:GOLI) (OTCMKTS:GFIOF) to develop the project, completing the transaction in December 2016.
The joint venture came after the company produced a bankable feasibility study for the project in October 2016 and considered a range of funding and development strategies.
Gold Fields paid $350 million for its stake, $250 million of that upfront and $100 million to fund Gold Road’s share of cash calls during construction, along with up to $51 million of any construction cost overruns.
Gold Road and Gold Fields each hold a 50% stake in the Gruyere Joint Venture, with Gold Fields now operating the venture and housing its investment in its wholly-owned subsidiary Gruyere Mining Company Pty Ltd.
Gold Road managing director & CEO Duncan Gibbs told Proactive Investors the joint venture was a way of derisking the project which already had bank financing.
Geologist Gibbs said, “The sale to Gold Fields has essentially funded Gold Road’s share of Gruyere development costs.”
“As a consequence, we anticipate by the end of 2019 Gold Road will be generating strong cash flows from the 50% (share) of Gruyere and, unlike other developers, achieve this with very little debt.”
Debt to be repaid
The company has debt facilities of $150 million and expects to draw some debt from its financiers, which include National Australia Bank, Societe General and ING, to fund final construction and initial mine operations with substantial financing capacity in reserve.
Repayment of debt should occur in the first year of commercial production.
Gibbs said, “This is a unique situation for a junior exploration company to successfully metamorphose into a debt-free cash-generative gold producer.”
Attractive gross margin
An uncapped 1.5% net smelter return royalty on Gold Field’s share of production from the Gruyere venture tenements will apply once total gold production exceeds 2 million ounces.
Gruyere mine has forecasted average life-of-mine all-in-sustaining-costs (ASIC) of $1,025 an ounce.
With the gold price hovering at the $1,800 an ounce mark, margins at today’s prices are tipped at more than $750 an ounce.
The corresponding gross margin is greater than 40%.
Strong cash generation from Gruyere is likely to fund future organic growth initiatives or returns to shareholders.
Gold Road has $70 million in franking credits from the sale to Gold Fields, which could potentially benefit Australian investors.
Given targeted annual production is 150,000 ounces for Gold Road’s investors, sales revenues for the company’s stake in the mine would be in the order of $270 million a year.
Partners Gold Road and Gold Fields are hoping for annual production of about 300,000 ounces a year over a 12-year mine life, for total sales revenues of $540 million a year.
Revenues over the 12-year mine life would be $6.48 billion, with both partners taking a $3.24 billion share.
Total initial capital expenditure (capex) is forecast at $621 million, with Gold Road’s share being $284 million.
According to an updated mine plan issued in December 2018, planned mill processing throughput was lifted from 7.5 million tonnes a year to 8.2 million tonnes at the project after fully-funded scope changes were incorporated into the plan.
Deposit suited to simple mining and processing
Gruyere’s inventory includes a 3.7 million ounce reserve and a 6.5 million ounce resource for both partners, with the deposit suitable for simple open pit mining and ore processing.
Ore reserves from Attila and Alaric have also been incorporated into the production schedule for Gruyere project.
The Gruyere project partners have commenced open pit mining and anticipate building up ore stockpiles prior to first gold production.
Mining has been significantly de-risked as the partners have completed at least two years of grade control.
Gold Road has reported a low strip ratio of 2.7:1 for the project, describing its five-stage mine plan as ‘low risk’.
The process plant adopts a gravity carbon-in-leach (CIL) circuit with ‘favourable metallurgy’.
Overall recovery from processing is 91-94% while gravity recovery is expected in a range of 35-40%.
Milestones and next steps
Gibbs expects steady news flow in the coming months, highlighting the company’s upcoming milestones include the completion of construction at Gruyere.
He expects, “Completion of construction with ore commissioning to lead to first gold production in the June 2019 quarter.”
Commercial production would be another milestone for the company.
Gibbs also expects ramp-up of the mine to its capacity of 8.2 million tonnes a year will be achieved over a six-to-seven-month period following first gold production, and be complete by the end of 2019.
The geologist-MD said, “Once we have stabilised the operation at nameplate, we will be seeking to optimise the asset including production rates and costs.”
This is something he achieved previously as general manager at the Tropicana Gold Mine where production rates lifted from 5.5 million tonnes a year to 7.5 million tonnes a year.
Gold Road leadership
Gold Road’s MD joined the company in September 2018 as its new corporate leader on the retirement of former MD & CEO Ian Murray.
Gibbs was a general manager at AngloGold Ashanti’s Sunrise Dam and Tropicana gold mines.
He led a significant turnaround program at Sunrise Dam and led Tropicana from discovery, through its study phases, construction and into production.
The corporate leader bought into Gold Road on December 20, 2018, snapping up 40,000 shares on the market for $24,350, at an average of 60.9 cents a share.
Former leader Murray finished his handover to Gibbs on January 1 this year, retiring from the board and exiting the company with an indirect stake of more than 12.488 million fully-paid ordinary shares.
Yamarna exploration and development program
Gold Road has a wider greenfields exploration program on the large Yamarna gold belt which has a 180-kilometre greenstone strike.
The company reported last month its exploration was “focused on defining deposits that support the next standalone, more than 1 million ounce, operation on 100%-(owned) ground.”
Gold Road’s wholly-owned Southern Hub at its Yamarna tenement package includes Gilmour, Smokebush, Toppin Hill and Wanderrie.
Gilmour is a new, exciting discovery for the company made in late 2018.
Gibbs said, “Our Gilmour discovery (features) high-grade gold mineralisation hosted in quartz veins in the southwestern part of the belt.
“We have yet to determine the potential scale of the resource.
“During 2019 we will be targeting extensions to the current vein as well as potential parallel and fault offset structures.
“Depending on the scale of the deposit and other resources identified near Gilmour development could conceptually be developed as either a standalone operation or via the Gruyere plant.”
Gold Road’s 100%-owned tenements in the Northern Hub at Yamarna include Ibanez (Corkwood), Bloodwood and Romano.
The company plans to spend between $17 million and $20 million on exploration at the three hubs this calendar year, drilling 40,000-50,000 metres of reverse circulation (RC) holes and undertaking diamond drilling.
Gold Road will also direct its funds to an aircore geochemistry effort across 40-60 square kilometres of unexplored tenure.
The soon-to-be producer hopes to develop another, wholly-owned mine from its exploration efforts, achieving mid-tier miner status as it continues to build value for its shareholders.