Monday, June 20, 2011

Mining resumes at Ballarat - Castlemaine Goldfields

Those regularly reading the blog may be aware that I currently only hold two precious metal related stocks (have taken a defensive position as described in earlier posts), one of those is Castlemaine Goldfields (ASX: CGT). This morning they released an announcement (with results from recent drilling) which seemed to wake the stock out of a slumber.

Here is an excerpt from the announcement:
Ballarat Exploration Update - Spectacular Gold Intersection
Sulieman Line of Mineralisation Highlights:-
Spectacular gold intersection from CBU095 on the lower BFZ Fault:

29.1 m @ 32.1 g/t Au from 230.7m,
incl 6.95m @ 6.3 g/t Au from 241.05m massive spur vein zone
& 9.3m @ 91.5 g/t Au from 250.5m fault related massive quartz

The horizontal width for the CBU095 quartz intersection is estimated to be approximately 21m with height unknown. Follow up diamond drilling from the Lower Llanberris decline is now planned to test this new and exciting gold target across approximately 40m of strike.

Managing Director Mr. Matthew Gill commented “This is one of the best underground gold intersections recorded to date in the Ballarat goldfield, and reinforces our conviction that the best area to explore and mine for gold at Ballarat is at the northern part of the goldfield.

As detailed in our ASX release on 26th May 2011, the Sulieman Line of mineralisation in Britannia holds potential for a 3rd ore source, and it was predicted that extensions to that gold mineralisation could be found in the adjacent Llanberris compartment. Now that we have returned to drill the Basking Fault in the Llanberris, it is very pleasing that the results are supporting our geological theories.

We are currently extending the existing underground decline and this will pass close by this intersection. We now plan to conduct in-fill drilling with the objective of being able to add thismineralisation into our near-term gold production plan. This represents a great upside for us, as we progress on schedule towards first gold production in September this year." Link to full ASX announcement.
CGT opened trading at .043 (well above the close of .039 the trading day prior), closed at .044 and traded up to .51 during intraday trade.

A cross trade of 17m shares went through at midday (around 1.1% of the entire company) meaning we've possibly seen a top 10 shareholder exit their position or sell down some of their holding. It's also possible we have a new significant holder. It will be interesting to see who this was when the market is informed. The latest top 20 holders can be viewed on the CGT website, HERE.

In total almost 64m shares exchanged hands today, over 4% of the companies share base, which is no small feat given that the top 20 hold almost 70% of all issued shares.

From a technical analysis perspective CGT's rise looks promising having broken out of a falling wedge with the strong move higher. However short term direction of trade has the potential to be influenced by larger market shifting factors with Eurogroup Finance Ministers meeting this week to discuss what to do about the Greece situation (another bailout or will they allow the eventually inevitable default?)...

I wrote an editorial/company profile piece in May which will be going to print in an investment journal this July. For those interested here it is below:

Mining resumes at Ballarat - Castlemaine Goldfields

In a world where central banks have thrown responsible monetary policy out the window and world governments have been spending like there is no tomorrow, papering over the damage caused by the GFC, there are but a few safe havens for those looking to protect their wealth. Of course the most prominent of those is Gold, a metal whose rare properties have seen it flourish as a wealth protection tool for many thousands of years.

For absolute protection physical Gold is a must, but for those looking to capitalise on Golds rise there is also the option to invest in companies that are exploring for and mining the precious metal. Some Gold mining companies look set to profit handsomely with costs much lower than the spot price of the metal itself.

An investor needs to weigh up the many risks associated with mining companies; one of those is the risk that future government policy will reduce the value of an investment (sovereign risk). While mining costs can be significantly cheaper in less developed countries there is also risk of nationalisation of mines and mineral resources (something discussed recently in Bolivia and South Africa) as well as other changes that could be a detriment to the investor. That is why I prefer to direct most of my capital into Australian based miners.

One of the up and coming Gold mining companies in Australia is Castlemaine Goldfields (ASX: CGT). You wouldn't know it by looking at their name but CGT's flagship project is the Ballarat Gold Project. The project was purchased from Lihir Gold (ASX: LGL) in 2010 for a paltry $4.5m and a 2.5% royalty on production (capped at $50m). $400m had been spent developing the project; the purchase included a 600ktpa plant (designed and installed by Gekko) which has been fully commissioned (removing some of the major risk associated with a start-up producer) as well as a state of the art laboratory, supporting infrastructure, drilling equipment, freehold land and all associated license areas.

Over the months following the transaction CGT sold surplus equipment (given their plans for a smaller operation) totalling $1.95m, covering over 40% of the initial purchase cost.

Capital ($25m) was raised recently in a placement to sophisticated investors at 5c; other shareholders were also offered the opportunity in a Share Purchase Plan. These funds will be used to advance exploration at Castlemaine, Berringa and Tarnagulla. It also provided working capital for the company to resume production at Ballarat during the third quarter of this year.

CGT is targeting 50koz pa from Ballarat with potential to ramp this up to 100koz pa with ore from surrounding regional deposits. Cash costs at Ballarat are anticipated to come in at around $750. Assuming a $950 total cash cost we could see gross cash flow of around $22.5m (using AUD$1400 Gold price), around $15m after royalty and tax (1c EPS). With a market cap around $64m (early May 2010, 4.2c share price) it's easy to see why one could see plenty of value here for the astute investor. With significant investors (top 20) holding close to 70% of the company it does mean liquidity for daily trading can sometimes be lacking, this results in an erratic share price at times.

While CGT have not used LGL's 2007 resource statement for Ballarat (which was 1.5m ounces of Gold at 11.8g/t), they do have a JORC resource at Castlemaine of 686koz. LGL had plans to mine 200koz pa for 20 years from Ballarat, it's likely that the deposits at Ballarat have the potential to supply CGT with Gold rich ore for many year (if not decades) to come.

Significant grades from drilling (by LGL) in the 18th months leading up to the resource upgrade at Ballarat included: 9m at 30g/t, 8m @ 22.7g/t and 4m @ 47.4g/t. Results from CGT in early 2011 have also shown promise with recent results (from Ballarat East) including: 7.8m at 13.8g/t, 5.5m at 61.4g/t, 8.8m @ 9.2 g/t and 12.7m @ 7.1 g/t.

Mining has just commenced with the company expecting first ore to be intersected in the next few months (which will lead to first Gold production). Investors are clearly cautious about the potential at Ballarat with the share price languishing. This is not unexpected given LGL's failed attempt with the project, but Matthew Gill (MD & CEO) was recently quoted saying, "We're not targeting the same mining rate (as the previous owners). We're more measured and going to let the geology direct where we take it". With the right plan and people in place I think there is a good chance that Castlemaine Goldfields will succeed where others have failed.

Bullion Baron

Disclosure: Stock in Castlemaine Goldfields held at the time of writing article.



  1. going to be interesting to see what head grade the company will get when it starts mining

  2. Will be interesting, sounds like the first ore they will be extracting will be low grade from known sources to re-commission the plant so might not be until the the new year that we start to get an accurate reflection of grades they will be able to achieve.