Out of the market gloom the Australian gold producer price shines

29 October 2008 | 04:39 Code : 18262 Geoscience events
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Existing gold mines in Australia in Australian dollar-denominated terms should be....

Existing gold mines in Australia in Australian dollar-denominated terms should be highly profitable with the price achieved so far this year having a high of $A1,346/ounce and a low of $A909/oz. (While the gold price slipped today to $US713/oz the Aussie dollar nosedived to $A0.60=$US1, to give an Australian producer price of $A1,176/oz).Bell Potter Securities Ltd’s Hugh Wallace-Smith told clients to his Points to Ponder email newsletter that investors attracted to gold should consider two domestically-controlled and mid-tier producers Dominion Mining Ltd (ASX: DOM) at the Challenger mine in South Australia and Beaconsfield Mining NL (ASX: BCD) at Beaconsfield in Tasmania.With the carnage on the Australian bourse, as well as global markets, Australian gold shares have generally fared better, despite the fact that some high cost operations such as Kalgoorlie’s Super Pit (a 50/50 partnership between Newmont Mining Corporation and Barrack Gold) were in stress mid year.In the 1990s and earlier in the new millennium most of Australia’s major gold producers were taken over by the North American and South African majors, with the only big leaguer left alone Newcrest Mining Ltd (ASX: NCM) and that was because it then had a toxic hedge book - a far cry from today.Outside of Newcrest, less than 10% of Australian gold production would be produced by locally-owned companies.Wallace-Smith pointed out that Dominion achieved a gross profit in 2007/08 of $A40.4 million ($US24.4 M) with an average gold price achieved of $A872/oz. There was an after tax profit of $A33.4 M ($US20.24 M) or A32.5 cents/share from which a dividend of A12¢/share was paid."Dominion is a very tidy little Aussie gold package. It has a market capitalisation of $A210 M ($US127 M), has $A55 M cash ($US33.3 M) and is on a dividend yield of 5.8% and on a price earnings ratio of 6.3 times. If you applied today’s gold price of $A1,200/oz to last year’s results, Dominion would have increased revenue by about $A35 M ($US21.2 M).Wallace-Smith said Beaconsfield has been unloved since its successful re-opening in June and has returned to its traditional production rating of between 90-100,000 oz per annum.He said there is no taxation issue for the company because of previous losses (the mine gained global exposure through two entombed miners being saved after days underground after a rock fall that killed one miner.)The gold analyst suggested Beaconsfield Gold could achieve a net profit in the current year of about $A60 M ($US36.37 M). "one can conclude this stock is seriously geared to the Aussie gold price," he said.Today, junior gold explorer A1 Minerals Ltd (ASX: AAM) told Mineweb that the strong $A-denominated gold price was a factor behind it pushing ahead with an objective to be in gold production in the Laverton district.The company announced it now has new discoveries and a JORC-compliant resource of 1.01 M oz in six deposits and will press on with an initial production aim of treating 250,000 tonnes per annum for the first two years.Latest drill results from the Delta leases include 11 metres grading 5.9 grams/tonne gold from 46m depth and another of 2m @ 27.8 g/t from 38m.A1 Minerals’ managing director John Williams said that subject to Western Australian Government approvals being streamlined - as promised by the new Liberal-National Party government - the company could be producing gold by mid 2009.Williams said while the chronic shortage of labour has suddenly been transformed by explorers and base metal miners slashing their workforces, the challenge to complete funding production will be a need for bankers easing the paralysis on financing, and for investors to comprehend that medium to low cost Australian gold producers could make good money.


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