Argonaut recently visited Saracen Minerals (SAR) Carosue Dam Operations, located
~120km NE of Kalgoorlie within the South Laverton gold field.
Carosue Dam was originally commissioned by Pacmin (later acquired by Sons of Gwalia) in
2000. SAR purchased the 2.4Mtpa plant and the bulk of the land package from St Barbara
(SBM) in 2005 for ~$17m when the operation was under care and maintenance. Today,
SAR has 875koz in Reserves, more than 3Moz in Resouces and a substantial tenement
position encompassing the Laverton and Keith-Kilkenny Tectonic Zones.
To date, the management team has done a commendable job through the commissioning
phase, consistently coming in on time and below budget (led by Executive Chairman Guido
Staltari, who previously ran Burmine). Re-commissioning of the plant began in November
2009, with first gold pour achieved in January 2010. The total capital outlay for the
commissioning phase was $20.9m, ($3.5m below budget). The operation produced ~15koz
in the March Q and has produced over 19koz in April and May.
The goal is to become a >150koz pa producer by 2015.
SAR has devised a staged development plan, with production over the first 3-5 years
coming predominantly from the previously mined Porphyry and virgin Whirling Dervish
open pits. Stage 2 envisages a further 3-5 years of production sourced from cutbacks of
existing open pits as well as potential underground opportunities such as Red October.
Pre-strip of the Whirling Dervish pit has been completed and will underpin the bulk of the
mill feed for at least the next two quarters. Given its proximity to the plant (~1km) and
anticipated above average grades at the top of the footwall lodes, production in the Sep
and Dec Q’s could surprise.
Risks to monitor include the challenging production schedule, sustaining the grade profile
(Reserves – 1.6 g/t), sensitivity to fuel prices and keeping up with a ‘hungry’ plant (which
has operated at ~2.6Mt on an instantaneous basis).
Exploration looms as the key to de-risking the production profile moving forward. The
tenement package remains substantially under-explored at depth with potential for
identifying mineralised structures within a setting that has defined ~25Moz of gold in the
last 15 years.
SAR has recently completed a two-tranche $35m placement, leaving the Company debtfree
and with adequate working capital to progress development opportuntities. The bulk
of the proceeds will be spent on de-risking the potential >8g/t Red October underground
project (at the northern extent of the tenement package), which could be the ‘gamechanger’
for SAR, sitting 15km south of AngloGold’s ~15Moz, ~400koz pa Sunrise Dam
operation.
Argonaut’s valuation of $0.56 assumes a ~A$1,300/oz gold price over the next three years
with production grades reverting to the current 1.6g/t average reserve over a 6-year mine
life. The stock is cheap across a range of metrics and provides strong leverage to gold
prices (spot gold and fx valuation is $0.62). The key to re-rating will be demonstrating
upside to current grade expectations.
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