De Grey bid is more evidence of why gold stocks are undervalued

There you have it; the Aussie gold developers are seriously undervalued in a $4000/oz-plus Aussie gold price environment.

The proof of that came on Monday when the biggest ASX gold producer Northern Star lobbed its $5 billion scrip bid for gold developer De Grey.

The agreed bid comes with a capex bill of at least $1.3 billion to get De Grey’s 530,000oz a year Hemi gold project in the Pilbara into production by FY2029.

Just the acquisition cost alone was a 44% premium to De Grey’s 30-day average. So it can be  suggested that if the market was asleep at the wheel in valuing De Grey before the bid, it is probably doing the same with a whole bunch of other ASX gold developers.

None have the scale of Hemi. But they don’t need to be in a $4000/oz-plus gold market to think about having market caps substantially higher than they currently are, on a successful project development that is, and/or becoming a takeover target.

All that emerged as a major theme at the Sydney and Melbourne legs of the annual Resources Rising Stars  “Summer Series” conference during the week in the wake of Monday’s bid by Northern Star.

Astral (ASX:AAR):

Astral boss Marc Ducler gave as good a summary as there is about just what $4000/oz-plus  Aussie gold prices have meant for the gold developers.

Speaking at the Sydney leg of the conference, Ducler first noted that this time last year the gold price was circa $3000/oz, and here we are with it floating above $4000/oz.

“If I was going to describe the biggest difference between Astral in December of last year and today, I would say last year we had a great gold project that we wanted to advance to production, but we were trading at 6.5c and we had a market cap of about $50m, $2m cash in the bank and our (share) register was 5% institutional,” he said.

“Today at 14c, we have a market cap of well over $150m ($168m), $28m cash in the bank and our institutional representation is now 24%.

“So we’ve gone from being a company that actually wanted to develop our project to one that absolutely can.”

He was talking about Astral’s Mandilla project, 70km south of Kalgoorlie, adding that at $4000/oz gold, the project is ‘’absolutely taking off”.

“In short, we are now a company that is advancing towards production.’’

A pre-feasibility study is due in the June quarter next year and with a definitive study to follow on in support of a final investment decision on the project, one previously scoped out as capable of producing 100,000oz annually for the first 7.5 years.

Based on the $2750 gold price assumption used in last September’s scoping study, a $191m development had a payback of 9 months thanks to robust all-in sustaining cost of $1648/oz. Plug in a $4000/oz gold price assumption, and the project would “be absolutely spitting cash,” as Ducler put it.

While Astral’s share price has been a strong performer in 2024, it is doubtful that the full value for Mandilla – and the prospect of the higher grade Feysville satellite deposits on Kalgoorlie’s doorstep to juice things up to 125,000/oz annually – is fully captured in the company y’s $168m market cap.

The near Kalgoorlie location means there are plenty of existing operators in the region that will be watching Astral as it pins down its development plans in the new year.

The main deposit at Mandilla (Theia) is a 1 million oz deposit in single open-cut position. It is a rare things in the goldfields and could well be too good an opportunity to pass up for the owners of the ever-hungry treatment plants in region.

Santana Minerals (ASX:SMI):

New Zealand has never been a friendly place for miners looking to get a project into production. It has been doable but tough, a bit like Australia has become.

But that has changed with the rise to power of the National Party-led coalition, which wants to double the size of the resources industry in quick fashion to help pay the bills.

Fast-tracking approvals for projects of national significance is the main tool to get things moving, much to the delight of a company like Santana Minerals (ASX:SMI) with its Bendigo-Ophir gold project in the South Island.

It is said to be the most significant gold discovery in NZ in 40 years. And as Santana executive director Sam Smith put it at the RRS conference, it is “so significant the new coalition government has declared it is a project of national significance”.

He said the expectation is that the project will be formally added to the fast track process after it becomes law early in the new year and given the mandated six month timeframe for permitting to occur, Bendigo-Ophir could have the all-clear by July.

First gold from the end of 2026 at an annual average rate of 125,000oz at a potentially best in- class all-in sustaining cost of $1,416/oz after capex of $340m is the plan. Assume $4000/oz gold prices and the simple payback would be under one year.

“Companies that have assets like these that already have processing plants and mining permits have market caps between $1.5 and $2 billion,” Smith told the RRS crowd.

“Our market cap is $350m (48c a share) and we are closing that value gap, very, very quickly. Put us on your watchlist.”

Brokers following the stock are supportive. Penning research notes on the stock after the November 15 release of the prefeasibility study into the project, Blue Ocean Equities was at the high end with a price target of $1.25.

Shaw & Partners sat in the middle with a $1.14 price target while Euroz Hartleys was at the low end at 85c, down from $1 a share in response to the higher capex and operational costs in the PFS. Buy the dip was its message.

The Bendigo-Ophir discovery sits about 90km north-west of OceanaGold’s (TSX:OCG) Macraes operation. It is NZ’s biggest gold mine (135,000ozs annually), with OCG also owning the Waihi mine (60,000oz annually) in the North Island.

Those mines, and operations in the US and Philippines, underpin OCG’s $3.1billion market cap. Time will tell if OCG wants to capture the suggested upside in Santana for itself by adding another NZ gold mine to its portfolio now that the government is open for business.

Magnetic (ASX:MAU):

George Sakalidis has remained an unassuming sort of guy even though his Magnetic (ASX:MAU) has notched up one of the best gold discoveries of recent times at the Lady Julie project near Laverton in WA’s north-eastern goldfields.

In the last couple of years the discovery – underpinned  by the Lady Julie North 4 (LJN4) deposit – has grown to a more than handy 1.88M oz grading 1.79g/t gold (LJN4 grades 2.01g/t), with previous studies pointing to annual production potential of around 100,000oz at super-competitive costs.

“It is growing as we speak,” Sakalidis told the Sydney leg of the RRS conference.

 A feasibility study on a standalone project is being prepared for release in the new year and given the growing confidence in the resource, thoughts of pushing annual output to as much as 150,000oz are on the agenda.

The stock was mentioned here in January when it was trading at 90c. It has since moved higher to $1.28 for a market cap of $341 million, which is not a lot given LJN4 has the makings of being one of the one of the biggest higher-grade open cuts in the country.

And as suggested earlier, benchmarking Magnetic against companies already in production with annual production like that seemingly possible at Lady July suggests it will only be a matter of time before the stock is rerated.

Argonaut – it has acted for the company previously – has a $3.20 price target on the stock in a November research note on the company. Confirmation of a mining lease/native title agreement would support a market re-rate.

The broader market also remains to be convinced capex can be as low as cited in previous studies. Assuming the next capex estimate is not off the scale for a project of Lady Julie’s size, a further re-rate is in the offing.

In keeping with his unassuming manner, Sakalidis has made no secret of the fact he would be happy for a bigger gold group to recognise the project’s potential by making Lady Julie/Magnetic their own.

At the conference, Sakalidis confirmed that a data room had been opened to a number of companies, a possible reference to overseas interest in the project. “And at the same time we are talking to our neighbours as well,” he said.

Those neighbours include Gold Fields at Granny Smith/Wallaby 15km away, Genesis at the restarted Mt Morgans operation 10kms away, and AngloGold Ashanti at Sunrise Dam 50kms away.

Each of the neighbours have varying degrees of a need for additional supply sources for their hungry treatment plants. From Magnetic’s perspective, it makes for competitive tension should one of them decide to make Lady Julie their own.

AUSGOLD (ASX:AUC):

It was mentioned here back in early June that Ausgold’s (ASX:AUC) newly arrived executive chairman John Dorward was intent on injecting momentum into getting the three million ounce Katanning gold project into production.

Ausgold was a 30c (adjusted) stock at the time and it has since moved up to 40.5c for a market cap of about $145 million. So the momentum wheel has started to spin.

No surprise in that as Dorward has a can-do reputation from building mines in Mali and Burkina Faso, of all places.

Before his arrival at Ausgold, Katanning’s development seemed to be on the never never despite its scale and location, an easy three-hour drive south-east of Perth. That perception is fast fading, something Dorward drove home at the RSS conference.

He said a feasibility study would be released in June next year in the lead up to a final investment decision to start construction in 2026.

“You can expect to see the feasibility study in June of next year and we won’t miss the deadline,” Dorward said.

“What you can expect from that feasibility study is a very neat, straightforward project from a technical perspective – 10-year mine life, about 120,000oz a year, $300m capex.

“At the moment we are looking at 3.6mtpa of throughput with a planned expansion capacity to 5mtpa. We’re doing that ahead of finding the rest of the orebody if you will (as) we’re trying to build in some future flexibility and some optionality from the get-go.”

Dorward has previously compared Katanning’s status to Capricorn’s (ASX:CMM) Karlawinda gold project in about 2020 except Katanning is bigger, higher grade with double the tenure and better infrastructure.

Karlawinda is the project that put CMM’s market cap on its pathway to its current $2.6 billion value. CMM is more than Karlawinda now. But the comparison by Doward in Katanning’s favour does give a feel for the size of the prize he is after for Ausgold.