We commented in the April 2004 issue of Paydirt that we had experienced the Australian Gold Sector re-form after the 1987 crash. From 6-10 producers in 1988 to ~20 producers in 1990, ~30 in 1993 (and consolidation beginning to start), ~40 by early 1995, and eventually down to 6 to 10 again in 2003/4 (ignoring the major offshore gold companies that had undertaken most of the acquisition or consolidation).

The ~40 in 1995 ranged from >200,000ozpa producers such as Acacia, Aust Res, Dominion, GMKalg, Gt Central, Homestake, Highlands, Kidston, Mt Leyshon, Newcrest, North Flinders, Placer Pacific, Plutonic & Pos Gold of which only Mt Leyshon and Kidston actually closed.

In the <200,000ozpa producers were Aurora, Burdekin, Burmine, Consex, Coolgardie, Croesus, Delta Gold, Emperor, Forrestania, GM Aust, Gldn Shamrock, Hargraves, Herald, Macraes, Melita, Min Res, Mt Edon, Niugini, NRE, Ore Search, Orion, Otter, Resolute, Ross, Perilya, Samantha, Sons of Gwalia, St Barbara, Valdora, Wiluna and Zapopan. (There are not many names still existing in that block).

And there was a pre-production group which actually did produce, such as Auralia, Bolnisi, Camelot, Carrie, Charters Towers, Climax, Dome, Eagle, Geographe, Horizon, Hunter, Lynas, Min Corp, Mt Burgess, Pacific Is, Sol Pacific and Taipan. The list covers most, but not all.

In the April 2004 issue of Paydirt, we referred to the cycle starting again with some of the possible mines coming through such as the old mining areas of Indee by deGrey, Gabanintha by Reward, Fortnum by Gleneagle, Wirralie by Ashburton, Goldstar at Woods Point, and Chalice by Bullion - all of which failed in one form or another, although to be fair, Chalice was later onsold to Avoca. Tanami’s Coyote was also mentioned, but struggled and is only now expected to attain profitability after June 2009.

There were some winners, such as Pan Australian’s Phu Kham in Laos, and some that started but have already closed, such as most of Troy’s Sandstone and Gallery Gold’s Mupane.

In our March 2005 column of Paydirt, we listed a number of gold companies that intended to start production over the coming year. Excluding PNA which has succeeded, and Newcrest bringing in Cracow, only Avoca has eventually came into any form of successful production (it was delayed by constructing its own plant, because the toll treating alternatives were too onerous).

Of the rest, BMA failed, along with Crescent’s Sickle, Bendigo’s aspirations of 600,000ozpa by 2012, Austminex taking over Coolgardie, Leviathan crumbled along with Perseverance (taken over by TSX-listed Northgate – that apparently only solved PSV’s refractory recovery issue a couple of month’s ago), Reed Resources’ Sand George, Highlands’ Kainantu and Dragon has struggled with Svartliden in Sweden.

Victoria has continued to be tough as further illustrated by the apparent gradual closure of Ballarat, and gradual disappearance of Goldstar at Woods Point. And Paulsens is still there, but under Intrepid, as Nustar fell by the wayside. Westonia’s underground re-opening not surprisingly didn’t work, nor did View’s Bronzewing, and Agincourt made heavy going at Wiluna especially when they started the Williamson open-cut on the nearby salt lake.

Better luck was to be had offshore with Sino Gold’s commissioning of Jinfeng in China, but for most other potential China producers such as Berkeley, Golden Tiger and Michelago, it has been tough if non-existent going. While Kingsgate appears to have successfully persevered in Thailand.

So ignoring the mega overseas gold companies such as Anglogold and Newmont, that are listed in Australia, but have predominantly overseas exposure, the new Australian gold sector appears to consist of ~ 30 gold producers (note our list may not be comprehensive), being ~ 13 >100,000ozpa producers such as : Apex Minerals, Avoca, Dominion, Kingsgate, Lihir, Mineral Deposits, Newcrest, Norton Goldfields, Oceana, OZ Minerals, Resolute, Sino Gold and St Barbara.

With ~ 17 <100,000ozpa producers such as : Allied, Beaconsfield, Bendigo, Citigold, Dioro, Dragon, Focus, Hill End, Intrepid, Medusa, Mundo, Nth Qld Met, Pan Aust, Ramelius, Silver Lake, Tanami and Troy.

And an emerging ~ 22 pre-production group (mostly in 2010) being : A1, Adamus, Alkane, Andean, Catalpa, Centamin, Citadel, Cortona, Crescent (the A’s and C’s are popular), Exco, Gryphon, Independence, Integra, Leyshon Res, Mungana, Navigator, Perseus, Red 5, Regis, Saracen, Southern Gold and Tianshan.

Undoubtedly some will fail, some (like Golden Tiger) even jumped ship at the bottom of the cycle, and some of the coming revised revivals will probably fail yet again.

Although a number of goldfields are again coming back into production, one of the differences this time is that the high A$ gold price means that some of the old open-cuts can be cut-back such as by Catalpa at Westonia as shown in Figure 1, or by Navigator at Bronzewing.

Some attempted mergers have started such as Avoca of Dioro, although Dioro’s takeover defence document appeared to be too generous “dubbed unrealistic by Avoca”, valuing a diverse range of in-situ “exploration” resources at about $1 per Dioro share.

If Dioro was worth the takeover document’s preferred value of $1.88/share, then it would appear to have a market cap of A$173m, on 49% of La Mancha’s Frog’s Leg mine, its main HBJ pit at South Kal with a major wall collapse, one of its back ups (Mt Marion pit) with a serious wall collapse, and with Frog’s Leg expected to produce ~60,000ozpa for 8 years (or 490,000z over an 8-year life). Dioro was last trading (19 June 2009) at 60c, which is above the Avoca offer.

We even recently attended a presentation in which a company said that it had raised money, had started construction with a portable crib room and ablution block, but was hazy when replying as to whether it had all its approvals.

There were also many rumours about Integra being taken over at the Sydney RIU conference in May 09, with who was having coffee when and where with whom, but nothing has as yet happened. Integra stated in its presentation that it had not received any formal bids as yet, however, it intended to consolidate / takeover the other players / properties in the region.

There have also been rumours that some of the overseas listed companies (like Northgate Minerals), that hold small Australian gold mines may list or spin-out their Australian properties in Australia.

Quite clearly the Australian Gold Sector cycle is well into starting all over again, setting the stage for this years’ Diggers and Dealers in August 2009.

Disclosure and Disclaimer: This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (an independent research company) who is an Authorised Representative with Taylor Collison Ltd, and with his associates, may hold interests in some of the stocks mentioned in this article. 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.

Figure 1. Catalpa’s Edna May Open-cut