Barton SA feature part 2

Is Barton Gold’s belief in South Australia about to pay off?

This is the second of a two-part feature series.

This article is a sponsored feature from Mining.com.au partner Barton Gold Holdings Ltd. It is not financial advice. Talk to a registered financial expert before making investment decisions.

Barton Gold (ASX:BGD) has positioned itself to capitalise on the ‘underexplored’ Central Gawler Craton in South Australia, having pegged ground and acquired assets in the ‘underexplored’ region since 2018.

As Managing Director Alexander Scanlon explains, the current geopolitical risk environment (as outlined in the first feature of this series), is important for many reasons, but particularly so for gold investors.

As previously reported, in 2016 Scanlon foresaw a confluence of events with the world entering a new phase of hyper-nationalism, political factionalism, and a trend toward geopolitical instability. Inflation expectations were a serious concern – long before the current scale of Central Bank mismanagement in which piles of money would be pumped into the global markets.

Today, Scanlon sees the level of geopolitical risk as considerably higher than it was 5-10 years ago, driven largely by a global shift to nationalist policies and increasingly adversarial relationships between major military and economic players.

The effects are increasingly evident in respect of energy policy and prices, and the theme of strategic development of ‘critical minerals’ for national military and economic security is growing more prevalent.

Concerning signs

Scanlon notes that the amount of monetary issuance post-GFC has been concerning, rising to the level of “extreme recklessness in the face of short-term desperation to save the economy” during COVID.

Monetary policy

We now however have somewhere on the order of 5x the pre-COVID money supply sloshing around (in USD terms) and so far, this has resulted in precisely the predictable outcome – an explosion of cheap money driving asset bubbles in low-quality and/or highly speculative real estate, venture / tech, credit, and equities markets. 

“This has set up the potential for a considerable crash across multiple markets”

This has set up the potential for a considerable crash across multiple markets – all of which correlate in a crisis – and though we have seen markets pull back, we have not yet seen a true flight to quality or economic crisis in the face of a likely pending and severe recession.

There is still a lot of hot money flying around and this has not yet found its way to gold, which has in the modern setting increasingly taken on the role of signalling the ‘capitulation trade’ when market participants finally panic.

Think 2009-2012 post-GFC: when markets started to price the true underlying economic situation, and the inflation risk of the then-unprecedented $1 trillion TARP bank bailout. The USD gold price moved from USD $900 to $1,900 per ounce, very aggressively. This however did not happen immediately in response to the GFC – it was some 14 months after the failure of Lehman brothers, and a period of trading sideways within a $100 / oz band, that the market suddenly reordered and the gold price exploded to the upside.

Consider also that the US M1 money supply has increased ~$16 trillion since March 2020, bringing the current balance to a ~5x multiple of the ‘pre-COVID’ M1 money supply, and a nearly 14x multiple of the pre-GFC M1 money supply. We are already seeing the highest inflation levels in ‘western’ countries for the past 40 years. This is only the beginning.

You simply can’t ‘unprint’ $16 trillion in new liquidity without destroying the very economy you set out to ‘save’, upward price movements are very sticky, and a massive [new] oversupply of money on the demand side is colliding is structural shortages in raw materials on the supply side which take many, many years to resolve.

There is no short-term fix here. Raising interest rates 200-300 basis points from ‘zero’ can’t reduce demand to the point that supply constraints are no longer constraints and markets balance.

In fact, western economies’ GDP tends to comprise 60-70% of domestic consumption, so how do you fight the inflation monster without intentionally and very severely crashing the economy?

You don’t, and I don’t think we have a single ‘Paul Volcker’ amongst the western world’s central bank Governors who are willing to deal out, and take, the pain of being unpopular in a social media driven world. Instead, I think they will ‘chicken out’, rate innovations will be limited, and the new global inflation paradigm will be cemented.

Thus, inflation will likely continue generally unchecked and people will simply continue to bid more nominal dollars (on a long-term weighted average basis) for the same limited physical supplies of raw materials. I do not think this is likely to revert to prior ‘cheap’ levels for a very long time, particularly in energy markets.

As to gold, when the capitulation trade comes in, I suspect it will be a truly impressive re-rating once institutional investors holding trillions of dollars of negative real yielding paper decide to make a run for a risk and inflation hedge.”

Money in the bank

Barton is very well-positioned to build until that capitulation trade comes in. It has more than $11m in the bank as of 30 June 2022, no debt, has recently generated more than $2m income (including from surplus asset and gold sales), and the company is looking at other cash-generative opportunities in parallel with its highly successful large-scale gold exploration.

“We are very well-positioned for the next few years”

We are very well-positioned for the next few years. As a gold explorer, it is our job to spend money – that is to say, it is our job to strategically and carefully de-stock capital with the objective of delineating new gold resources.

What sets Barton apart on this front is its concurrent ability to restock capital from internal sources, thereby supplementing our exploration budget, reducing our net cash burn and importantly, dramatically reducing and deferring the requirement to raise additional capital. This is extremely beneficial for shareholders.

As an explorer, Barton is relatively unique in that it has surplus assets – those it has deemed unnecessary for its near- or long-term operations – which it can sell. The clear benefit, as the Scanlon notes, is that Barton can ‘considerably’ extend the life of its treasury balance.

Just recently, in June 2022, Barton sold a small portion of its Central Gawler Camp for $737,500 (plus GST) as well as $1 million in gold. This actually led the company’s quarterly cash balance to increase from $10.8m (30 March 2022) to $11.2m (30 June 2022), despite the fact that Barton completed and paid for ~6,400m of drilling during the quarter.

Scanlon adds: “That’s of course a very unusual outcome for an explorer, and one that sets us apart from the traditional model.

We still hold a significant volume of surplus equipment and will systematically dispose of these assets to generate additional free cash that we can re-invest into long-term value generation for Barton shareholders. We are also looking at other potential cash generative opportunities relating to our existing assets. Where we see the opportunity, we will pursue these aggressively.”

Scale is king

At present, the opportunity Barton is seeking to capitalise on is Mineral Resource drilling at the Tunkillia prospect, due to start in September.

Barton Drilling in SA

The company is currently finalising the design of this program but, generally speaking, expects to have at least one drilling rig doing +10,000m of RC drilling targeting infill and extension of existing and new zones of mineralisation. The objective is to support of an updated mineralisation model and growth of its current 1.1Moz Mineral Resource Estimate.

Barton will also potentially be undertaking some diamond drilling with a second rig as it further builds its local and regional geological models and start to think about how to prospectively develop these assets on a large scale.

While grade is important to every gold project, Barton remains focused on delivering value through scale and careful execution of a long-term regional strategy.

“Grade is necessarily king, until scale gets involved. Scale is actually king”

Grade is necessarily king, until scale gets involved. Scale is actually king. Scale drives efficiency, and grade then drives margins depending upon that degree of efficiency.

“The ‘grade is king’ rule clearly applies in particular to underground development and mining owing to this higher-cost, higher-risk environment. However, this is less so for large-scale open pits. Above a certain grade threshold, within that setting it is less a ‘necessity for development’ as large-scale resources can amortise the development costs across larger and longer-term production, and more a case of the extra grade being ‘extra cream’ as high-efficiency bulk open pit mining can drive impressive operating results.

A salient and real-time example in this regard is ASX-listed Capricorn Metals who have well demonstrated these principles at their recently commissioned Karlawinda Project. This is an asset that has an average Mineral Resource grade of only 0.80g/t Au – about 75% of the Tunkillia Projects grade – but like the Tunkillia Project has high-grade zones interspersed within its otherwise broad, continuous mineralisation.

Using a combination of selective and high-efficiency bulk open pit mining methods, Capricorn is now operating Karlawinda at an annualised production rate of well over 100,000 oz, with an all-in sustaining cost (AISC) of around AUD $1,100 which positions them very competitively on the gold cost curve. They will not only generate exceptional value for shareholders but can also weather far higher volatility in the gold price than many of our respective peers.

With an eye to scale, ownership of the region’s only gold processing infrastructure, and a 1.1-million-ounce gold endowment set to grow, Barton appears well on track to reign supreme among gold developers in South Australia’s Central Gawler Craton.

Write to Adam Orlando at Mining.com.au

Images: iStock & Barton Gold Ltd
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Written By Adam Orlando
Mining.com.au 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.