Astral Resources: the making of Mandilla

This article is a sponsored feature from partner Astral Resources Ltd. It is not financial advice. Talk to a registered financial expert before making investment decisions.

“Perfection is not attainable, but if we chase perfection, we can catch excellence.”

This quote from Vince Lombardi, who is considered by many to be the greatest coach in American football history, is an apt description of the Scoping Study Astral Resources (ASX:AAR) has completed for its flagship Mandilla Gold Project.

The gold-focused company is targeting exploration, growth, and development of its flagship Mandilla project, located 70km south of Kalgoorlie in Western Australia. Mandilla hosts a Mineral Resource Estimate (MRE) of 37Mt at 1.1g/t Au for 1.27Moz of contained gold.

In this region, there’s about 30 million tonnes per annum of processing capacity and another 15 million tonnes per annum of capacity coming online.

Imagine Mandilla and then head out 100km in every direction and it will add up to that capacity. It’s a very mature exploration area and large profitable open pit deposits that are mineable from surface are becoming exceedingly rare.

As the Scoping Study illustrates, Astral is on track to help fill some of that 15Mtpa of capacity due to come online in the region.

Moves to making Mandilla

Managing Director Marc Ducler explains to that the study is the culmination of 3.5 years of effort and is based on conservative assumptions for gold price revenue, as well as costs.

The company has considered various development options but ultimately determined a 2.5 million tonne per annum Carbon in Leach (CIL) processing plant and associated infrastructure is the optimum strategy. While some of the larger players in the area would potentially seek to secure more mill feed, at this stage, Astral is content on building its own processing plant.

A five-stage open pit design has been based on a $2,100 an ounce gold price with all-in sustaining costs (AISC) over the full life-of-mine (LoM) to average about $1,648/oz. Ducler says the three-stage crush, single-stage grind option provides the lowest capital and operating cost across Mandilla’s life-of-mine.

Mandilla is forecasted to generate an unleveraged and pre-tax IRR of 73% and an unleveraged and pre-tax NPV of about $442 million (NPV8%).

Ducler tells this news service the Scoping Study has the potential to generate a serious re-rating of Astral’s share price. Additionally, it still has significant exploration potential including at the 1Moz Theia deposit, while Feysville is generating ‘exciting’ intersections including the recently announced 4m @ 94.84g/t and 5m @ 8.39g/t at the Kamperman prospect.

“We’ve put out 5 Mineral Resource Estimates, and pretty much from the first one, every time we did it, we would have a look at what it would look like at a Scoping Study level

“We’ve put out 5 Mineral Resource Estimates, and pretty much from the first one, every time we did it, we would have a look at what it would look like at a Scoping Study level. This is why we’re always keen on continuing to grow the resource because you need a fair amount of runway to give yourself a decent, robust project. Which is the point we believe we have now arrived at.

The feedback I’ve received from our biggest shareholders has been absolutely positive. And I’d like to think that this is going to be the starting point for us. As the market digests this Scoping Study and decides where we should fit in the developer peer group, that it should see us continuing to move up.”

In a 21 September analyst report – the date the Scoping Study was released – analysts at Rawson Lewis noted the study was of such sufficient high quality it could be considered as a Prefeasibility Study (PFS).

The difference between a Scoping Study/PFS and Definitive Feasibility Study (DFS) is the accuracy of the cost estimates.

The MD agrees with Rawson Lewis – this study is robust and, for the most part, is at a feasibility study level. The mine design and scheduling would certainly meet the requirements for this level of study. It also has a fully detailed design and is scheduled all the way through to the end of life of mine.

“There are a number of things that we’ve done to a definitive level of study and they are the important things. You need to get your pit wall angles right. You need to have a design that you can execute and a schedule that makes sense. So, I would argue that the work we’ve done in the Scoping Study should absolutely be sufficient to drive a re-rate in the share price.”

Of note, while Astral is using a conservative gold price, the precious metal has spent less than 30 days under $2,900 in the previous 180 days prior to the 21 September release of the study.

The MD adds: “I am extremely bullish on gold and when we’re progressing our next levels of study, we’ll probably have enough runway with the gold price to demonstrate that we can run a higher price scenario again. The gold price is, in my view, certainly going to continue to strengthen from here.”

Other gold companies such as Black Cat Syndicate (ASX:BC8) and Bright Star (ASX:BTR) have used the higher $2,900 gold price assumption in their studies.

Meanwhile, Ducler is confident of raising the required $191 million in pre-production capital expenditure when the time comes. For one, Mandilla has strong technical and economic fundamentals, which will deliver an attractive return on capital investment – it will generate free cash flow of some $740 million over the 11-year life of the mine and a payback period of less than a year.

Astral also has a strong track record of raising equity.

Ready for a re-rating

In the Rawson Lewis analyst report, the firm states the Mandilla Scoping Study demonstrates Astral should be trading at $0.24 based on a standalone project NPV discounted at 15% per annum allowing for project funding dilution from raising $120 million in equity at $0.15 per share.

This $0.15 share price seems reasonable considering there’s no large equity raise coming for Astral until 2025. Interestingly, the company is currently trading at $0.085.

The MD says Astral went into the study with “reasonable views the whole way along”, taking a conservative approach to price and cost assumptions.

“What we wanted to do is be able to pitch ourselves in a reasonable spot from a mining and processing cost perspective.”

Mandilla’s AISC average of about $1,648/oz over the full life-of-mine is competitive. Comparatively, fellow gold miner Capricorn Metals’ (ASX:CMM) Mount Gibson project’s AISC is $1,420/oz for the first 7.5 years of its operation.

The MD notes: “You want to have your unit cost about where these other players are forecasting their costs to be, because otherwise, analysts will discount the quality of the technical work. And so, we’re comfortable that the work we’ve done shows that our unit costs are in the ballpark of where they need to be. And given that it’s in the right ballpark and we have a project as robust as this certainly works in our favour.”

The Mt Gibson Gold Project was acquired in July 2021 at a time when Capricorn’s share price was trading at about $1.75. It is currently trading at about $4.095. Essentially, Capricorn has grown from a gold company about the same size as Astral to the $1.5 billion market capitalisation company it is today – off the acquisition of one asset.

In terms of magnitude, while Mandilla is about 70% of Mt Gibson’s size, as the Scoping Study shows, Astral’s prized asset is poised to generate some serious free cash flow.

Ducler adds: “You get judged on your free cash flow generation, and you get marked for that. Delivery on that metric tends to give you the market capitalisation to then look at how you grow your business with the right value accretive transactions.”

Focus on funding

He says the $191 million pre-production capex will likely be funded via a mixture of debt and equity, which will be raised prior to construction starting.

“We will do a debt carrying capacity analysis because you want to get a sense as to what is the capacity of this project to carry debt and that’s because we want to deliver an outcome that’s robust and beneficial for shareholders. We want to be able to carry a strong amount of debt, and obviously minimise dilution.”

The debt carrying analysis will potentially be carried out in the next couple of months, well before the PFS. At some stage, Astral will seek to appoint a debt advisor to facilitate the process.

We want to be able to carry a strong amount of debt, and obviously minimise dilution

While a 70% debt and 30% equity split is preferred, the MD notes in the current market this is an exception rather than the norm so Astral is guiding towards a 60:40 split.

“The thing is, you put out a study and everyone is talking about the equity component. This is a Scoping Study, so it’s very preliminary. What it does is it tells the market that this is a solid project that produces fantastic free cash-flow, it can pay back its debt inside a 9-month period.”

He is confident of raising the required capital for a number of reasons. One, the study confirms the potential for Mandilla to become a highly profitable standalone gold operation. Also, Mandilla has strong technical and economic fundamentals, which will deliver an attractive return on capital investment. And generating free cash flow of some $740 million over the 11-year life of the mine and a payback period of less than a year is impressive for a junior currently valued at $60 million.

Again, Astral also has a strong track record of raising equity.

Down the track this also presents Astral with plenty of growth opportunities.

“We’ll be making $40 million per annum in free cash flow. We process high-grade ore for 7.4 years before starting on the stockpiled lower grade material. But we would certainly want to have grown our high-grade resources by the time we got to that stage and that would be from additional exploration at Mandilla, exploration at Feysville. And we’d be looking in our immediate neighbourhood for the sort of tenure that we believe would have the capacity to generate deposits of similar scale that we could feed into our large Mandilla process plant.

We’ve identified some projects that we would be keen to try to get our hands on if we could that are in our region. Once you tie those opportunities up then you can look further afield, but that is a fair way off into our future.

Ducler concedes the robust Scoping Study and attractiveness of Mandilla as a standalone project will likely put Mandilla on the radar of many suitors.

“At the end of the day, the market is a voting machine and if someone wants to buy this project, well, then they just have to put that offer into the voting machine and then the outcome will be determined by the shareholders. And I’m more than comfortable with that process. That’s one of the great things about running a publicly listed company – it’s a democratic process, and shareholders can vote with their holdings.”

Mandilla is situated in the northern Widgiemooltha greenstone belt, 70km south of Kalgoorlie and is firmly established as one of the best free-milling, open pit resources in this renowned district in both scale and quality.

The study estimates an average gold production target of about 100,000oz per annum at an average feed grade of 1.3g/t Au over the first 7.4-year period, reducing to a projected average production target of some 41,000oz per annum at an average feed grade of 0.50g/t Au when treating lower grade stockpiles over the remaining 3.4-year period.

Exploration and evaluation activities are continuing at both the Mandilla and Feysville Gold projects. Exploration at Mandilla will include both in-fill drilling to convert inferred resources to indicated resources, together with ongoing exploration drilling targeting further resource growth.

Feysville is located 14km south of the KCGM Super Pit in Kalgoorlie and hosts a MRE of 3Mt @ 1.3g/t Au for 116,000oz of contained gold. Astral also holds other tenement interests at its Carnilya Hill project in the Western Australian Goldfields.

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Images: Astral Resources
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Written By Adam Orlando Editor-in-Chief Adam Orlando has more than 20 years’ experience in the media having held senior roles at various publications, including as Asia-Pacific Sector Head (Mining) at global newswire Acuris (formerly Mergermarket). Orlando has worked in newsrooms around the world including Hong Kong, Singapore, London, and Sydney.