High costs and difficult underground mining conditions have dogged the mid-tier Australian gold producer, Agincourt Resources, for the past year. A September quarter cash cost of A$635 / ounce from its flagship Wiluna goldmine in Western Australia best tells the story. After selling the 25,822 ounces produced at A$689/oz Agincourt was left with a notional gross profit of A$54/oz, or just A$1.4 million from three months of toil. But that result will soon be seen as an historic snapshot of the tough times. Two events have significantly changed the outlook for the Perth-based company which is fast emerging as a world-class gold producer. First was the discovery of what looks to be a major new high-grade orebody at Wiluna. Second was news of an expanded resource base at the recently-acquired Martabe project in Indonesia. If Agincourt can “connect the dots” quickly and correctly over the next six months it will be an infinitely better-looking investment proposition.
Some early-birds have already spotted the change underway. Over the past three weeks Agincourt has risen quite sharply. There is further to travel before the stock gets back its 12-month high of A$1.95 reached in April, and the company is carrying the load of extra shares issued as part of a A$100 million capital raising to fund the Martabe purchase from Newmont Mining. But a snapshot of Agincourt reveals a series of hidden assets, including a 57 per cent stake in Nova Energy, a future uranium producer which is sitting on the Lake Way project which has an inferred resource of 19.8 million pounds of uranium. Uranium, however, awaits political change in Australia, a painfully slow but inevitable process that should be back in the headlines after the national opposition votes to lift its ban on new uranium mines next April.
The real value in Agincourt today lies in its gold assets, starting with Wiluna, an historically prolific goldfield, but always difficult to work. What’s changed at Wiluna is the Henry5 orebody which has been discovered between the Woodley and Calais structures. Best recent assays include a very substantial 18 metres at 8.1 g/t and 8.8metres at 18.7g/t. “It’s certainly an important discovery,” said Agincourt’s chief executive, Peter Bowler, when Minesite caught up with him in his Perth office. “We probably undersold it a little , but there is an important message in the last sentence of our latest announcement when we said there are three underground drilling rigs now focussed on testing the strike and depth extent of Henry5. What that means is that we’ve now put all of our underground rigs on to it.”
Bowler said the early interpretation from his geologists was that Henry5 would be better than Calais because it was more continuous. “We’ll start driving across to that from existing workings a.s.a.p.,” he said. “Two of the rigs are not working for assays but are trying to close it off at the top so the engineers can determine where the decline needs to go to intersect the orebody. Once they do that we can really get serious with those three rigs and then start drilling along strike and at depth.” Bowler said it was too early to talk about expanding the overall Wiluna operation, but then added this thought: “if it’s big and good, then we’ll revisit the shaft option, but it’s way too early to talk about that. But, at the very least there will be an improvement in tonnes per vertical metre. The material we’ve hit so far is definitely better than Woodley, and similar to Calais, and we’re hoping that it will be a lot more continuous.”
The underlying message from the Henry5 discovery is that it has the potential to breath new life into Wiluna, just as Agincourt embarks on an even more ambitious development, the Martabe project in Indonesia. From being a one-mine producer, with all the risks attached to that, Martabe adds a second, and almost certainly very low cost operation. On November 1 Bowler reported a fresh resource upgrade for the multi-structure deposit, lifting Martabe’s JORC compliant resource by another 480,000oz of gold and taking silver up to 60 million ounces. The rush now is to get Martabe into production, and for the company to focus on that task, possibly going as far as disposing of non-core assets, such as the Andorinhas project in Brazil.
“Indonesia has to be our main focus,” Bowler said. “Martabe is an emerging world class project, it has tremendous potential.” But, when Minesite suggests that Agincourt could soon graduate from a one-mine company to three mines, with Brazil joining Indonesia, Bowler baulks. “I think you have to look at our quarterly to get our thinking about Andorinhas to see that we’re looking at all options there, whether it be a joint venture, or a divestment, of whatever,” he said. For Agincourt watchers this talk of a possible divestment is news, but welcome news because it demonstrates that the company is fine-tuning its future production options and delivering on its promise to investors who chipped in the A$100 million to buy Martabe. If there is a criticism of Agincourt it is that sometimes the smorgasbord selection of projects to watch is a bit bewildering, not to mention the technical jargon. Hands up anyone who can explain (in plain English) a “phreatomagmatic breccia” or “halos of advanced argillic alteration” – and no, these are not diseases of the elderly!
Back in the real world, Martabe is shaping up as corker. Apart from the fat, and growing, resource base, the project is heading quickly towards a development decision. Bowler said the current plan was to finish a full, and bankable, feasibility study by the end of March. “We’ll start talking to financiers in January,” he said. “Project finance should be ready by July/August, and we’ll start construction soon after that. We’ll be ordering the long lead items early January/February, and first gold production around the end of ’08.” Bowler then displayed remarkable confidence in Martabe. Asked for a production cost estimate, a bit of a long shot question at this early in the planning process and Bowler replies immediately that it will be “around US$130/oz after silver credits”, with an early estimate of the capital cost being around US$165 toUS$185 million, for an annual gold output of between 270,000oz and 300,000oz, and annual silver output of 2.5million ozs of silver.
Perhaps the easiest way to look at Martabe is of a project which will more than double the size of Agincourt and its Wiluna operation which is running at an annual 115,000ozs to125,000ozs. More importantly, the new ounces are low cost ounces – and more importantly again, the Wiluna operation has just won a new lease of life thanks to the Henry5 discovery.
AGC Price at posting:
0.0¢ Sentiment: Hold Disclosure: Held
