This article is a sponsored feature from Mining.com.au partner Gascoyne Resources Ltd. It is not financial advice. Talk to a registered financial expert before making investment decisions.
Twelve months is a long time in mining.
A company can go from pouring first gold one year and into administration the next.
That same miner could then emerge from the ashes the year after with a recapitalisation deal to being cashed-up, debt-free, and structurally sound the following year.
Gascoyne Resources (ASX:GCY) is that mining company.
Yet less than two years on from executing a successful $125m recapitalisation package, the company isn’t just in a ‘business as usual’ mindset – it’s thriving and ambitiously seeking to grow through exploration.
When you are a Perth-based company operating in a tier-1 gold mining jurisdiction in Western Australia, being successful is ingrained in the company’s DNA.
With its 100%-owned Dalgaranga Gold Project and a wholly owned +2.5Mtpa processing plant within its portfolio, Managing Director Simon Lawson explains that a well-articulated growth strategy is helping Gascoyne unlock the potential of its core underlying asset – the goldfield where it operates.
Power of the drill bit
“Having worked for a long time at Northern Star Resources (ASX:NST), which has been an employer of choice, I’ve seen what you can do with the power of the drill bit and that is exactly what we are using at the moment.
“I’ve seen what you can do with the power of the drill bit and that is exactly what we are using at the moment”
We are changing the future of this company one drillhole at a time – and we will be successful.”
Not even inclement weather and having COVID-19 sweep through its workforce could temper Gascoyne Resources’ success this time around.
Gascoyne has just come off record gold production in the March quarter. The company generated more than $44 million in revenue from gold sales in the June quarter alone. And it currently sits on $30.8 million in net cash, as well as having no debt.
For Lawson, who has more than 15 years of exploration, production, and management experience under his belt, the former Northern Star chief geologist recognises that Gascoyne can maintain production on the back of exploration success and can grow that capacity through drilling.
To this end, the company has invested some $3 million in delineating future sources of production through highly successful exploration and resource definition drilling at the Gilbey’s North, Gilbey’s Eastern Footwall and Plymouth prospects.
What is most promising is that, just last month, Gascoyne reported the new drill intercepts at Gilbey’s North are located less than 1km from its processing plant and returned ‘exceptional’ results from one of the deeper follow up drillholes. This included 54m @ 6.55g/t Au from 116m downhole, including 12m @ 20.1g/t; and 8m @ 1.15g/t Au from 100m downhole.
With that 30,000m drill campaign complete, Gascoyne intends to invest in another 30,000m before year-end on exploration to further unlock value. The drilling will be strategic and targeted with the aim of further extending the life of the Dalgaranga operation.
Lawson notes: “We have a debt-free company with a fully paid-off mill. If we can continue to put materially higher-grade through the mill, we’ll continue to make money for a long period of time.”
“We have a debt-free company with a fully paid-off mill”
If the company can process higher grades, it will be able to optimise throughput and potentially open up milling capacity to execute regional transactions, which could see other nearby miners process their material through the Dalgaranga mill.
For Lawson, it’s all about keeping options open and mitigating current and future risks.
Proactive and professional
This has been no more evident than how Gascoyne Resources has been proactive in dealing with its challenges and headwinds, which have been faced by all gold mining companies.
While COVID-19 cases have run rampant through its workforce, Gascoyne’s strategy has involved empowering people onsite ‘to change their own future’ and also ensure they are aligned with the company’s vision.
Part of that vision is for Gascoyne to be regarded as professional and an employer of choice. As labour costs rise across the industry, the company has been proactive in its approach to not only retain workers, but also attract others.
That retention strategy has a number of innovative staff retention and incentivisation measures including a well-structured bonus system, an open and transparent approach to employee communication, and ensuring strong alignment with the company’s vision
Lawson says the company’s site-based team is fully supportive of this vision, with COO David Baumgartel spending his entire time onsite rather than operating remotely from Perth.
Commenting on the retention strategy, MD Simon Lawson said: “It was very transparent, it was very effective, and it didn’t cost us a lot of money.
Being an employer of choice is a key aspect of what we are doing.
People are starting to change their attitudes now and they like what we’re doing, they like our consistency, particularly from a professional and technical point of view.
“People are starting to change their attitudes now and they like what we’re doing”
A lot of people are really liking the excitement around what we’re achieving at the moment, which is taking a company with some obvious legacy issues, fixing it and making it better. And they want to be a part of that.”
While Gascoyne is resilient to say the least, striving to operate with integrity and respect means the company is now attracting people by virtue of the outcomes it is producing.
Dalgaranga delivering outcomes
Those outcomes include earlier this month delivering gold production from Dalgaranga of 71,153oz for the 2022 financial year – within its full-year guidance range.
While the 16,298oz gold production for the June quarter was down on the ‘record’ of 21,669oz achieved in the March quarter due to inclement weather and increased COVID-19 cases, Dalgaranga posted a solid quarter and Gascoyne is enjoying considerable near-mine exploration success.
During the June quarter, Gascoyne also poured 16,597oz of gold and sold 16,882oz at an average realised price of A$2,620/oz (all unhedged), generating more than $44 million in revenue for the company.
As the drilling success also continued, Gascoyne managed costs and retained contracts by engaging with suppliers and relevant parties to ensure relationships continued by finding a ‘middle ground’.
A lasting legacy
Finding a middle ground has been the crux of Gascoyne’s story since its recapitalisation in 2020 but now the company is writing the next stage of its legacy.
It has moved well beyond the fallout from several years ago.
After pouring first gold from Dalgaranga in mid-2018, Gascoyne at the time struggled with lower-than-expected grades and went into administration in June 2019. As those grades failed to meet expectations it led to a material cash-flow shortage, ultimately sealing its collapse. The company eventually managed to lock in a $125m recapitalisation deal including $85m in equity, led by Canaccord Genuity, and a debt facility agreement for $40m from Investec Bank.
As previously mentioned, Gascoyne today remains debt-free.
Lawson notes that not having debt means the company has less constraints on what it can do and leaves Gascoyne with more control over its growth strategy and destiny.
“We have the ability to be dynamic, make our own decisions, and it gives us a lot more options and allows us to define our own future.”
According to Lawson, that future includes growing its resources as a responsible operator, extending the life of mine, as well as maintaining fiscal management, while executing its robust exploration strategy.
As a revenue-generating miner with strong cash flows and a fully paid processing plant, like most other gold miners, Lawson says his $102-plus million market capitalisation company is extremely undervalued.
But not all gold miners are created equal.
To build a processing mill of that scale would today cost between $150-200 million. When you consider the almost $31 million cash at hand and no debt on its balance sheet, Gascoyne does seem as though it is in need of a re-rating.
“From a valuation perspective we are a pretty attractive investment”
Commenting on that value proposition, Lawson adds: “From a valuation perspective we are a pretty attractive investment.”
It is hard to argue, considering the company just three years ago was in administration.
When Gascoyne acquired Firefly Resources (ASX:FFR) in November 2021, Lawson was meant to come on board as a non-executive director. However, unbeknownst to Lawson, the board and shareholders of Gascoyne decided they wanted him at the helm instead.
When his appointment was made, Chairman George Bauk said Lawson would bring a strong track record in operational improvement and resource expansion, which are aligned with Gascoyne’s objectives for the next stage of growth.
From all accounts, it seems as though the board and shareholders’ views have been validated.
This time around, while Gascoyne has not been immune to industry-wide headwinds facing all gold mining companies, it maintains a solid foundation and forward-looking strategy which look set to help it overcome these hurdles – and then some.
Lawson adds: “We are super undervalued compared to our peers but we are leveraging off the strength of the goldfield with which we sit within and we are really starting to unlock the value where we are.
“This is the start of something really good.”
Images: Gascoyne Resources Limited