The number of small-cap explorers with resources of more than 1 million ounces of gold is finite. Narrow it down to within 100km of Western Australia’s gold mining capital and the number shrinks to just one: Astral Resources.

M&A activity in WA’s gold space is increasing, as evidenced by last year’s two-way tussle for the Gwalia mine and the two-horse race to acquire Musgrave Minerals.

So far this year, Genesis Minerals has snapped up more Leonora ounces from Kin Mining and on Monday, Red 5 and Silver Lake Resources agreed to a merger.

The gold price is high but valuations remain low so it makes sense that producers are looking for ways to grow.

Astral is a small fish in a big pond of large gold mines operated by major producers.

The company’s Mandilla project sits just 70km south of Kalgoorlie and hosts a resource of 37 million tonnes at 1.1 gram per tonne gold for 1.27Moz of gold, 81% of which is contained within the Theia deposit.

Gold Fields’ major St Ives operation is just 22km away, while Mandilla is also close to Karora Resources’ Higginsville operation and Northern Star Resources’ KCGM.

Astral’s large open pit resource makes it a takeover target. Its former Goldfields peers with resources of more than 1Moz – Breaker Resources and Apollo Consolidated – were both acquired by mid-tier producer Ramelius Resources in recent years.

M&A pedigree

Astral’s board has form in the deal-making space.

The company recently signed on self-confessed “deal junkie” Mark Connelly as non-executive chairman.

In 2011, he was a key architect of the US$600 million merger between Ghana gold miner Adamus Resources and Toronto-listed Endeavour Mining and followed it up in 2014 by selling Papillon Resources to B2Gold for about US$600 million.

In 2019, Connelly was chairing Toro Gold, operator of the Mako mine in Senegal, when it agreed to a A$274 million buy-out by Resolute Mining.

In the past couple of years, he chaired Oklo Resources, which was sold to B2Gold for A$90 million, and Chesser Resources, which was sold to Fortuna Silver Mines for A$89 million.

Astral managing director Marc Ducler also has a track record of deal-making – his previous company, Egan Street Resources, was acquired by Silver Lake Resources for A$63 million in 2019.

Ducler is adamant the company won’t sit idle and will be working hard to generate value for shareholders.

“There’s only two outcomes for me: it’s a transaction, or we develop,” he said.

“It’s the only two things that generate a liquidity event for my big shareholders to make their money so that’s what we have to focus on.”

Mandilla

Astral completed a scoping study on an open pit development at Mandilla last year.

The study envisaged a A$123 million, 2.5Mt per annum operation to produce 845,000oz over 10.4 years at all-in sustaining costs of A$1643 an ounce.

Using a conservative gold price of A$2750/oz and an 8% discount rate, the study returned an unleveraged, pre-tax net present value of A$442 million and internal rate of return of 73%.

Life-of-mine free cashflow is forecast at A$740 million, while the payback period is estimated to be just 0.75 years.

The Australian dollar gold price is trading at more than A$3100/oz today.

Using a gold price of A$3000/oz, the NPV improves to $579 million with an IRR of 92% and payback period of just 0.67 years.

Ducler said the board would be looking to approve the start of a prefeasibility study within the next 4-8 weeks.

Exploration potential

While the Theia deposit at Mandilla contains 1Moz in a single open pit, Astral’s exploration focus is on the 116,000oz Feysville project, just 14km from Kalgoorlie.

“What we want to do this year is be focused on growth at Feysville and that’s because we are a company that prides itself on growing at sub-A$20 an ounce and Feysville gives us the best opportunity to continue growing at sub-A$20 an ounce,” Ducler said.

The company has had recent success at the Kamperman prospect, which has returned results including 4m at 94.84g/t gold; 13m at 9.06g/t gold; 21m at 4.16g/t gold and 10m at 4.57g/t gold.

“Any high-grade opportunities that we find at Feysville as a satellite hub, we are incredibly leveraged to what that will bring as we feed that into a Mandilla process plant,” Ducler said.

“We want to target something that is meaningfully larger than our existing production target and we want 75% of that to be in the higher indicated categories, so that we can declare a very sizable reserve.

“Our best chance of achieving that is at Feysville, because the ounces are going to be higher grade and we’ll put them in the front end, which will make our really good payback and IRR even stronger.”