What do you get if you hit 275 metres grading 4.77 grams gold and 0.61 per cent copper?
The answer is simple enough, as shown by Greatland Gold this week: a $65million joint venture deal that could pay all expenses to feasibility, and which could lead to the development of a major producing mine.
The partner in question is Newcrest Mining, Australia’s largest gold producer and, as a participant in the Lihir mine in Indonesia, a major player in the international scene.
Gold miners are busy exploring what looks to be an emerging new district at Paterson in Western Australia
It’s quite some leap for Greatland, shares of which are now touching five-year highs to give it a market capitalisation of more than £50million.
But even with the share price leap, the value of Newcrest’s potential spend is still roughly commensurate with Greatland’s entire capitalisation.
In short, it’s a big deal for a small company, the type of which you don’t see every day. At the heart of it is that 275 metre intercept and what it means.
First off, it’s deep, running from depths of around 459 metres below surface. That means an expensive underground operation is inevitable, and one that’s surely out of the price range of a junior miner like Greatland.
Nevertheless, the sheer quality of the intercept, its length and grade, meant that Greatland was unlikely to be short of suitors offer to provide assistance, and on attractive terms too.
Indeed, such an outcome was already broadly priced into Greatland’s shares, which, although they leaped on the day of the Newcrest announcement, didn’t quite scale the former heights reached when the original news of the intercept came out.
But of course, there’s more than one drill hit to this story.
Previous drilling by Greatland had already hit what in the context of the later discovery might now be called ‘encouraging’ grades and widths, but which at the time looked attractive enough in their own right.
Drilling in early 2018 returned 121 metres of 2.93 grams per tonne, and follow-up work in the summer delivered further hits of 21 metres at 3.78 grams one metre at 5.9 grams per tonne.
So, it’s not just a one-off hit that Newcrest is buying into, it’s a solid work programme that could be about to yield up a major discovery.
And it’s certainly in the right area for that. Greatland’s land package at Havieron isn’t held in isolation. All around, other gold miners are busy exploring what looks to be an emerging new district at Paterson in Western Australia.
Forty-five kilometres to the west lies Newcrest’s own Telfer mine, and both Greatland and Newcrest have been quite explicit that if ore comes up out of the ground at Havieron it will be destined for processing at Telfer.
Gold riches: Greatland hit 275 metres grading 4.77 grams gold and 0.61 per cent copper
That’s a significant distance to truck ore, but such arrangements are not particularly uncommon in the mining industry, and the overall savings on the construction of a new plant at Havieron could run to hundreds of millions of dollars.
With this deal, Newcrest is keeping one step ahead of its rivals in Paterson, of whom there are many. A staking rush has gradually gathered steam over the past 24 months or so, and has led the likes of Rio Tinto, Sipa Resources, Fortescue, Antipa and Red Metal into the area.
Aside from Telfer, which is up and running, there are several advanced prospects in the area.
But the addition of Havieron to the list shifts the centre of gravity at Paterson over to the south east.
Because although the Greatland exploration blocks were previously thought to be on the edge of the prospective area, that’s no longer the case. Newcrest knows this, and accordingly it hasn’t just joint ventured the block containing Greatland’s 275 metre hit, it’s also joint ventured 11 others held by Greatland, and obtained a right of first refusal over more to the north.
The likelihood now is that Newcrest drill rigs will mobilise rapidly at Havieron in an endeavour to replicate Greatland’s own drilling success. That in turn is likely to lead to some interesting newsflow that already has Greatland shareholders salivating.
‘This farm-in has, in my opinion, the potential to open up the entire Havieron region to commercial mining in a time frame and cost that stand-alone operations could never compete with,’ said Alastair Clayton, executive director of Primorus Investments, which owns around 1.1 per cent of Greatland’s shares.
Clayton has been involved in the capital markets and mining finance for many years now, and he knows a good thing when he sees it.