Thursday, 20 September 2012

B2 Gold - CGA Gold Merger / New Gold Blackwater

New Gold announced a new PEA for 500k pa production at Blackwater in British Columbia, getting nicely positioned in the sweet spot of "growth mid tier/consolidator" heading to 1 million oz production.
$1.5 - $2bn capex is quite something to fund from cashflow.

Not a cheap company any more at almost $6bn market cap.
There are cheaper production companies and deposits but there is a top tier management at New Gold, the 5-10year chart challenges the "metal not miners" story, there are a number of others in this growth sweet spot, neither in the grind of the majors struggling to replace resources nor the cash starved juniors diluting to fund exploration and development.

Part of the formula for these growth mid-tier groups is their ability to line up a string of projects so that mine building teams move on from one project to another growing the business. I presume that skilled and experienced mine building teams are in limited supply and the shortage is part of the reason for cost escalation, either chasing the scarce resources or mis-managing projects, Nolan Watson discussed the number of teams in the industry building their first mine the other day. Others who come to mind are Argonaut (ex Meridien management) who recently announced an exploration agreement in Nevada and B2 Gold (ex Bema management) who recently announced a merger with CGA in the Philippines, leveraging their skills in operating in tough jurisdictions according to the Northern Miner.

CGA hold a stake in St Augustine in the Philippines which seems to have anticipated the deal, perhaps a next mine to build.

Giustra's Endeavour looks to be building quite a group of mines in Africa, with the recent acquisition of Avion.
Eldorado are growing but perhaps reaching a market cap which will be hard to double.

Richfield's Blackwater was taken out early in its discovery cycle unlike some of the "deposits" which have been kicking around for so long.

Clearly large low grade deposits can be low cost in the right circumstances, I never properly understood quite how remote Blackwater is, or is it near key infrastructure, any Canadians clearer than me..?

There are an enormous number of exploration projects I'm seeing in British Columbia, many must be true Moose pasture but as lower and lower grades become economic some will show great scale potential. Capex and permitting will separate the best.
I've always been wary of the large low grade / open pits but with Osisko in production, Detour due in 2013 at good gold prices and high production volumes they could look very good. Thompson Creek's Mt Milligan (ex Terrane) shows the risks of capital overspend building vast mines.
Clearly there are enormous amounts of rock to shift for production, 60,000Tonnes per day at Blackwater, for less than 1g/T.
That is slightly mind boggling and is one of the things which makes me wonder about what the miners are having to do to get the shiny metal from the ground. I also assume the sensitivty to oil prices shifting those volumes must be high though NGD indicated limited sensitivity to opex, couldn't spot a number for oil sensitivity skimming through the PEA.

If gold is undergoing its big revaluation as described by Paul Brodsky here

....then the big deposits which could move to potential mines include large low grade deposits.
I am still wary of the "Wilderness" deposits which will hit many permitting and infrastructure risks. Good jurisdiction for ongoing ownership and sensible taxation will also be key. If the gold price collapses as these mines come onstream there will have been an enormous waste of capital. If the gold price spikes and falls back to a high level, entering the monetary system in some way these mines will be printing money.

No comments:

Post a Comment