In this article, we discuss two gold mining companies listed on the ASX. Of late, gold prices have been on a flying run, after a sharp fall in the prices during late-March 2020.
Since the beginning of the year, gold has outperformed most of the asset classes – its return stands at 24.89% (AUD prices), for the year-to-date period (as on 25 April 2020).
Capricorn Metals Ltd (ASX:CMM)
CMM is developing Karlawinda Gold Project in Pilbara, Western Australia. It is expected to produce 105k-120k ounces of gold annually at an all-in-sustaining-cost of $1,140-1,190 per ounce.
Earlier this month, the Company reported its updated JORC. Its updated JORC ore reserves estimate of KGP show 43.5 million tonnes at 0.9g/t Au for 1.2 million ounces, representing a 35% increase compared to the May 2018 estimates.
Meanwhile, the mineral reserve estimate (MRE) of KGP increased to 2.14 million ounces, with JORC MRE reserve estimate of 86.7 million tonnes at 0.8g/t Au for 2.14 million ounces. It was reported that the MRE was estimated by using a gold price of $2k, which was around $700 lower than the prevailing price.
In its March Quarterly Activities Report, CMM continued with development and exploration activities. The accommodation village work progressed with final plumbing, electrical and concreting work underway.
During the period, the Company placed orders for crushers, screens, feeders, mill, carbon regeneration kiln, etc. Management has been in contact with suppliers in light of the impact of coronavirus on the supply chain, and some delays were notified to the Company.
CMM, at this time, believes that the delays in equipment delivery would impact the construction timetable. On plant construction, it was said that most of the site has been cleared and some minor earthworks are left.
It would be finalising a formal power purchase contract in the June quarter, and the close proximity of the Goldfields gas pipeline would enable the Company to secure a cost-effective power solution.
At the end of the March quarter, the Company had $68 million in cash and $8.8 million was spent on the development of the project. CMM has an undrawn debt and bank facility of $100 million.
It also hedged 200k ounces of gold with the delivery of 10k-12k ounces of gold per quarter from June 2021 to September 2025 at a flat forward price of $2,250 per ounce.
On COVID-19, it was noted that the Company has been following formal guidance from the State and Federal health authorities. It has implemented measures to minimise the risk of infection and transmission.
CMM has been health screening employees, including contractors. Social distancing protocols, health hygiene and staggering of meals are being followed in the Company.
Its corporate office staff has been working from home. As the business is in the early stage of construction, there has been minimal disruption to the scheduled construction.
It was noted that the Company is monitoring the ongoing development closely that might delay the project development due to disruptions in the supply chain.
On 27 April 2020 (AEST 11:51 AM), CMM was trading at $1.380, inching upward by 5.344% from its previous close. Since the beginning of the calendar year, the stock is up by 6.5%. Over the past one month, CMM has recorded a return of +32.99%. Its market capitalisation stood at $427.97 million with 326.69 million shares outstanding.
Dacian Gold Limited (ASX:DCN)
Earlier this month, the Company launched equity raising to recapitalise the business. It has completed the bookbuild of the capital raising, which resulted in retail offer being underwritten.
Placement and Institutional Entitlement was completed, collectively raising ~$70 million from investors due to high demand at an offer price of $0.30 per share.
DCN has issued around 99 million shares under the placement to institutional shareholders, raising ~$30 million. And, approximately 135 million shares were issued under the institutional entitlement offer, raising $40 million.
As the capital raising activity is fully underwritten now, DCN would complete $98 million in raising. Retail offer was opened on 17 April and is expected to close on 1 May 2020.
Management noted that the Company is well placed to deliver on the 3-year strategic plan, augmented by a strong balance sheet. It would provide the business with headroom to invest in the future growth of Mt Morgans.
DCN intends to
- reduce debt and strengthen the balance sheet,
- increase financial flexibility and de-risk capital structure,
- maintain robust cash and working capital position,
- fully fund production plan and exploration activities,
- discussions with financiers regarding the replacement of project debt facility with a corporate style facility to better support sustainable future operations.
- Also considering opportunities to resculpt the hedge profile.
Use of fresh funds
Of the $98 million, DCN intends to use the funds in partial repayment of the Project Debt Facility of up to $50 million. Around $15 million would be spent on pre-stripping activities of Doublejay, which is due to commence in the June 2020 quarter, with production to begin during 2H CY2020.
Approximately $15 million would be used for exploration activities over the next 12 months but will remain in cash until incurred. The remaining funds of around $18 are expected to be used in working capital and capital raising expenses.
Between FY21 and FY23, the Company expects to deliver average annual production of 110,000oz @ AISC $1,350/oz.
In FY2021, DCN is targeting production of 120-130k oz @ AISC of $1,250-$1,350/oz. Also, the three-year outlook underpinned 96% by open pit ore sources and 4% by underground ore sources.
Besides, the period of optimisation studies for Westralia underground throughout CY2020 carries the potential to enhance and/or extend three-year outlook.
The Management has introduced the COVID-19 response plan:
- To reduce exposure, DCN and its contractors have moved non-essential site-based personnel work remotely.
- For those essential to continued operations, roster adjustments have been made such to reduce the frequency of travel.
- Contractor personnel who normally reside interstate and commute to the site have temporarily relocated to Western Australia.
- Its employees have ceased boarding commercial flights, instead using only charter flights.
- Before access is granted to the site, health testing has been implemented for all personnel prior to boarding Dacian charter flights.
- Various consumables and spares on-site are currently at acceptable levels, and suppliers of business-critical items have been contacted to confirm continuity of supply.
On 27 April 2020 (AEST 11:53 AM), DCN was trading at $0.370, advancing further by 1.37% from its previous close. Since the beginning of the calendar year, the stock has cracked 62.31%. Over the past one month, DCN has recorded a return of -18.89%. Its market capitalisation stood at $169.09 million, with approximately 463.25 million shares outstanding.
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