AFR Online article by Trevor Hoey
byTrevor Hoey
After plunging sharply from about 2500 points at the start of July to 2170 points at the end of the month, the S&P/ASX 200 Gold index continued to plummet in the first week of August, at one stage dipping below 2100 points.
Ironically, it was a small Victorian-based gold mining group in A1 Consolidated Gold that bucked the trend as the rout continued in August. Its shares increased more than 30 per cent between July 31 and August 5, returning to pre-crash levels.
Even more impressive were the volumes under which this rerating occurred.
More shares were traded in the first three days of the week commencing Monday, August 3 than in any other full week since the company listed on the ASX in June 2012.
Aside from the levels of outperformance and the records set, A1 is an interesting story. From the characters behind the group through to the history of the mine and onto the all-important project economics, the company doesn't just make for a good read it also has real investment potential.
In terms of backing, Andrew Forrest's private investment company Squadron Resources has tipped in $2 million by way of a convertible note which, if converted, would equate to a shareholding of nearly 14 per cent.
Management's interests are closely aligned with those of shareholders with chief executive Dennis Clark having a 10 per cent stake in the company.
He is very much a traditionalist, with the A1 gold mine his virtual office. He worked on the A1 mine in the 1980s and 1990s when it yielded 600,000 ounces at 25 grams per tonne. Clarke is keen to bring the project into production on a small scale basis as quickly as possible in order to commence paying dividends.
The deposit continues to return extremely high grades. While face chips from a highly mineralised narrow quartz vein grading 12,000 grams per tonne came from early-stage exploration activity, it could be a pointer as to what lies ahead of the drill bit.
This was part of the newsflow behind the recent share price surge.
The other contributing factor was the circa $5 million acquisition of the Maldon Gold operation which included a fully operational 150,000 tonnes per annum gold processing facility. There are two operating underground mines at Maldon, but the real game changer was the nominal consideration paid for the mill which management estimates would have a replacement cost of $15 million. As at July 31, 2015 A1 had already generated nearly $1 million from processing stockpiled ore at Maldon.
Towards the end of July, the trucking of ore from the A1 mine to the Maldon processing plant commenced and it is expected that combined production for 2015-16 will be in the order of 20,000 ounces, stepping up to at least 30,000 ounces in 2016 and beyond.
Analysts at Patersons said based on this production and all in sustaining costs of $849 per ounce, there is the potential for a margin of between $600 and $700 per ounce which over a 2 ½ year mine life should generate annualised earnings before interest, tax, depreciation and amortisation of approximately $25 million.
However, Patersons believes there is scope for significant exploration upside which would materially extend the mine life.
Analyst, Simon Tonkin said: "Conceptually, A1 has the opportunity to emerge over the next 1 to 2 years as a 50,000 to 60,000 ounces per annum gold producer".
He has a speculative buy recommendation on the stock with a 12-month price target of 7c, representing a substantial premium to the group's recent trading rang
Read more:
http://www.copyright link/markets/e...00-ounces-pyear-20150806-gispai#ixzz3hzg2eonM
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