Slab of Goldfields’ Kundana “Gold Rock” ….showing visible gold….and a typical 25-28kg Gold Bar house brick

We do not know who was more surprised when we recently asked Golden Cross (GCR) “where’s the gold bar”, and they actually stated that they are going to produce one by December 2001. In fact four companies (that we know of) are scheduled to produce their first gold bar by December 2001, with a fifth probably starting In January 2002.

But it is more complex than that, first you have to find an orebody, because companies can be subdivided into either finders or buyers. We can recall (we think it was) Metana in the 1980’s who raised money for about 3 years in a row, and drilled each year, and found apparently nothing but “moose pasture”. Most companies, though, these days do find orebodies, such as Acacia (now Anglogold), Delta, Goldfields and Newcrest, although Normandy has been more of a buyer than a finder.

However, the dilemma lies in the reality that geos love to drill (there’s nothing better than rows of rigs drilling holes – remember that Great Central drilling at Jundee), whereas miners love to blow things up (KG was a geo who became a miner and can commiserate with both viewpoints).

Then once you have found the orebody, does it actually made sense. We have found that two general rules can be applied, namely “Gold is where you find it, not where it is supposed to be” and “The formation of the gold in the orebody must be plausible or logical, because otherwise it did not happen that way”. Quite often the interpretation of the orebody changes when the open-cut (or underground) starts, we can recall RSG’s Chalice being still under review as to what was the direction of the mineralisation right up to before it closed with the trial stopes unsure whether the interpretation was correct or not. CTR’s Tuart changed (for the worse) almost every time we visited it (on a 4 to 6 monthly basis), and ACM Gold’s Westonia was unmineable underground.

Having said that, some orebodies benefit with the open-cut, such as DGD/PDG’s Granny Smith where the Sunrise reserve of 200,000oz blossomed into >2moz of low cost, high quality gold, that dipped into the Acacia ground.

However, having found the orebody, the biggest problem is deciding when to stop. Remember AMX’s Golden Cities north of Kalgoorlie. Its first target was 750koz, then the magical 1moz and then beyond…and ultimately the company went bust…and now the ore (in a deal with the Receiver) is expected to be treated in GLD’s Paddington mill. We’re sure Red Back wished that it had started producing earlier, whereas instead it seems more likely that it will sell its project in Ghana, and Mt Burgess could perhaps have fared better than to let its 50% of Red October go to SGW, with the low grade ~3gpt unable to economically make the trucking distance to the Leonora mill.

So it can be seen that there is risk in a company becoming too locked in on the quantity of its gold resources or reserves (for underground reserves it is almost impossible to drill-out a meaningful reserve on a 40m drill-spacing pattern). Once committed to construction, the company then has to accept that the market does not want it to continue drilling, burning away the available cash and then probably needing more, only to delineate areas which have no impact on the mine plan. It often only takes a few months before the cashflow starts running, and the exploration geos can start drilling again.

As far as we are aware, there are 4 ASX listed companies producing their first gold bar between now and 31 December 2001, namely KCN, GCR, TBR and GBG (in no particular order), and possibly BAR.

KCN or Kingsgate have stated that they expect to produce their first gold bar by 24 November from their Chatree mine in Thailand. The Chatree mine looks capable of exceeding its grade expectations, however, we will have to wait and see. GCR or Golden Cross is restarting the Adelong mine in NSW with a target of 40,000ozpa scheduled to commence by y/e, and TBR’s Tribune is really a case of GLD (Goldfields) mining the East Kundana JV in which Stage 2 of the open-cut was scheduled for the December Quarter of 2001.

GBG or Gindalbie are producing their first gold bar from Minjar (was a NDY property). GBG are probably remembered for what they achieved out of Two-Boys. This time GBG are targeting production of 140,000oz over 2.5 years, but the upside has been restricted by the Macquarie Loan of $7.5m which came with a “sting” being 90,000oz in forwards at A$510/oz. Barra (BAR)’s first gold bar from First Hit is expected to be achieved in January 2002, although the company is hopeful that it may be able to squeeze into late December 2001. BAR’s First Hit involves trucking the >13.5gpt ore about 190km to the Greenfields mill to result in about 80,000oz over 15 months at an average cost of A$330/oz.

There are other projects scheduled to produce their first gold bar in 2001, such as NCM’s Ridgeway which could sneak into the end of December 2001, however, we have classified that as part of Cadia, even if it does have its own separate mill.

The reason why the market focuses on those first gold bars is that they usually correlate to increases in the company’s share price, typically in a range of about two months ahead of commissioning the mill through to about 2 months after the mill has been commissioned.

This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, who has a Proper Authority with State One Stockbroking. This e-mail address is being protected from spambots. You need JavaScript enabled to view it The opinions expressed in this article should not be taken as investment advice, but are based on observations by the author. The author does not warrant the accuracy or completeness of any information and is not liable for any loss or damage suffered through any reliance on its contents