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Two Small Cap Gold Miners Worth Exploring
BY TIM BOREHAM - 04/04/2018 | VIEW MORE ARTICLES BY TIM BOREHAM

Gold miner West Wits has turned its focus from the Indonesian province of Irian Jaya to South Africa’s famed Witwatersrand region. Meanwhile, the revived Kingrose Mining is out to prove that ASX listed miners can do business in Indonesia.

West Wits Mining (WWI) 2c

The gold minnow has taken a unique approach to the rush in the Pilbara to find the equivalent of South Africa’s Witwatersrand, a region that has produced 40 percent of the world’s gold.

True, West Wits has joined the throng pegging ground in the Pilbara, where watermelon seed nuggets lie waiting to be kicked with a Blundstone just below the surface.

But the company’s main pursuit of Witwatersrand mineralisation is in the actual Witwatersrand Basin, where it owns a producing open-cut project with a local partner.

As far as we can see, that makes West Wits the only ASX-listed stock with projects in the ‘real’ and ‘fake’ Witwatersrands.
Until recently, West Wits fortunes lay with a project in Irian Jaya (West Papua) called Derewo. While it’s still on the books, the venture stalled because of problems with the local partner, a common refrain for an Indonesian project.

West Wits’ Witwatersrand Basin Project (WBP) was mined by giant DRD Gold up until 2000, producing 41 million ounces at an average five grams a tonne gold over six conglomerate reefs.

But a sagging gold price and concerns about the post-apartheid political climate meant that DRD (as well as other majors) scurried elsewhere.

“They just opened the doors and ran, leaving 30,000 mine maps covered in owl poop,” says executive chairman Michael Quinert.

To date the open-cut phase has been a simple operation based on a contract miner and a toll treatment arrangement.

But it’s been a handy source of cash, generating $300,000 a month compared with the targeted $200,000-250,000 a month.

To supplement its current resource of 3.26 million tonnes West Wits has identified 17 open pit and underground targets, initially focusing on two.

West Wits also sits on two Pilbara projects, Tambina and Mt Cecelia which – you guessed it – “show similarity to the famous Witwatersrand gold deposits.”

Tambina has three granted mining licences and management is pondering a mining start up later in the year “once the geology team identifies suitable conglomerate-hosted targets”.

Meanwhile, investors can expect the small-scale South African stuff to fund the company for the next 12-15 months.

But the company is confident of finding more, citing an exploration target of 25,000-40,000 ounces. It harbours plans to be an eventual 100,000 ounce a year producer and we guess there’s nothing wrong with reaching for the stars.

While many miners have shunned South Africa because of its political and economic uncertainties, new Cyril Ramaphosa was sworn in without incident last month.

The Nelson Mandela associate is making the right noises to the business and mining community, although there a few nervous white farmers feeling less than comfortable and relaxed despite Peter Dutton’s pledge of support from across the seas.

While West Wits is generating useful cash, with production and cash flow in January and February in line with internal targets.
West Wits’ $10m market cap (including $2m of cash) looks cheap in comparison weith peers such as Stonewall Mining (SHJ), which has a three million ounce resource project in South Africa and is valued at $30m despite not yet being in production.

The king of the Pilbara stocks, Artemis Resources (ARV) is valued at $122m ahead of its plans to drill a super-deep hole of 3300 metres in its Balmoral tenement package.

This program is expected to provide clarity on the geology of the much-hyped Pilbara Witwatersrand story. In the meantime, the stock is in trading halt at the behest of the ASX.

Artemis and Canadian partner Novo Resources sparked the new-age Pilbara rush by finding ‘watermelon seed’ nuggets at its Purdy’s Reward project south of Karratha.

Kingsrose Mining (KRM) 7.3c

Still on gold, a stirring tale of redemption has emerged from the wilds of Sumatra as a recapitalised Kingsrose fights back from its near-death experience.

Kingsrose started mining Way Linggo – majestically perched on a hill surrounded by jungles where elephants and tigers still roam -- as an underground venture in 2010.

The mine made a motza over a two-year life, but then management
made the mistake of investing the proceeds in a second high-cost underground operation, Talang Santo.

To cut a long and sad story short, costs mounted to the point where extracting the gold cost as much as $US2500 an ounce, way more than the spot bullion price.

Debts also mounted and the board opted for voluntary administration in late 2016.

“A lot of people nearly did their dough on this one,” says CEO Paul Jago, an experienced miner bought in to fix the mess last year.

A recapitalisation has seen Kingsrose re-emerge as a debt-free entity, with Way Linggo purring as an open-pit venture based on previously unrecovered ore.

The fruit’s of management’s labour were apparent in the company’s half-year results: a $3.16m profit compared with a $13m deficit last time around.

Way Linggo produced 14,868 ounces in the period, at an all-in cost of $US712/oz compared with the prevailing spot gold price of above $US1300/oz.

Amid its troubles, the company suspended operations at the high-cost Talang Santo underground mine, but plans to revive the mine as an open-cut operation with mining expected to re-start later this year.

Presumably the added output would further reduce per-ounce costs because any Talang Santo output won’t entail further big expense: infrastructure such as the mine camp already exists, while the processing plant is running at only 70 percent capacity.

Beyond the two open cut projects, Kingsrose’s longer term fate lies with finding more of the lustrous stuff on the tenements, on the fecund Ring of Fire geology.

“When we closed Talang Santo we had to make 450 people redundant,” Jago says. “But we redeployed 100 of them and we now have an exploration department of 65 people.”

The company is also open to the idea of acquiring another Indonesian project. Because the country has a reputation of being tricky to work in, assets are cheaper because fewer competitors are chasing them.

Kingsrose’s $56m market cap is supported by cash, receivables and bullion of $9.65m.

In the meantime, the timeline on Kingsrose’s website refers to “smells racy free announcing”.

That sounds like a case of either hacking or lost in translation. But hopefully Kingsrose’s investors (including several offshore institutions) will get the whiff of more racy announcements. 



View More Articles By Tim Boreham

The New Criterion is authored by Tim Boreham.

Many readers will remember Boreham as author of the Criterion column in The Australian newspaper, for well over a decade. He also has more than three decades' experience of business reporting across three major publications.

Tim Boreham has now joined Independent Investment Research and is proud to present The New Criterion, which will honour the style and purpose of the old column. These were based on covering largely ignored small to mid cap stocks in an accessible and entertaining manner for both retail and professional investors.

Disclaimer: The author nor Independent Investment Research have received a fee or any kind of inducement for this article. The New Criterion is not intended as specific investment advice and readers should contact a licensed financial adviser.



 

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