Gold will glitter at Diggers...but that won't be all

Nothing sparkles as bright as a good gold story. And what better place to be than Kalgoorlie-Boulder when Aussie gold is trading above a jaw-dropping $2100 an ounce.

Welcome to this year’s rendition of the Diggers & Dealers Mining Forum, a miners and investors convention founded on gold but regularly taken over by fad commodities.

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A bumper crowd likely to exceed 2000 has descended on the Goldfields capital ahead of today’s opening day proceedings, when the key presenters list will include former PM John Howard, South32 chief development officer Simon Collins, Rio Tinto group executive Stephen McIntosh and BHP Nickel West boss Eddy Haegel.

Here are some of the key Diggers & Dealers topics that will play out over the next three days.

GOLD TO GROW

The precious metal has never shone more brightly. And what a time for Gold Road Resources and JV partner Gold Fields to start production at their world-class Gruyere mine, 1000km north-east of Perth.

Warming up to nameplate output of 300,000 ounces a year, Gruyere is shaping as a long-term cash cow for its owners, courtesy of the world-class six-million-ounce discovery made by Gold Road just six years ago.

Gold Road – now a billion-dollar ASX-listed producer – and Gold Fields took more than 60 investors and media to Gruyere yesterday en route to Kalgoorlie-Boulder, for a first-hand look at the world’s newest Tier 1 gold operation.

Gold Road used the opportunity to also spell out to investors that it has strong growth prospects at and around Gruyere.

This raises an interesting question about the growth prospects of Australia’s gold sector – where is the next generation of ounces going to come from?

More and more players are heading offshore – Northern Star Resources, St Barbara and Resolute Mining have done offshore deals this year – and there is little greenfields exploration success worth reporting since the Gruyere discovery, though Bellevue Gold appears to be following Kirkland Lake Gold in adding lots and high-grade ounces to revive an old mine.

Market leader Newcrest Mining and the G5 – Northern Star, St Barbara, Regis Resources, Saracen Mineral Holdings and Evolution Mining – have delivered incredible wealth for shareholders but that success growth rate will not be easy to maintain.

It hints at more consolidation to come as miners use their cashflow to buy ounces. Silver Lake Resources, Ramelius Resources and Saracen have been busy buying smaller players in WA and the drums are beating that more deals – large and small, here and offshore (keep an eye on Cardinal Resources) – will be done in the foreseeable future.

There are 24 gold companies presenting at Diggers & Dealers this year, out of a total of 50 – if not a record, then certainly close to it.

.@diggersndealers here we come. Big media contingent + stunning weather at world-class #Gruyere #gold mine en route to Kalgoorlie. @_GoldRoad @GoldFields_LTD pic.twitter.com/hye635JeKz

— Investor Insight (@cp_investor) August 4, 2019

RECHARGE YOUR BATTERIES

Lithium is mirroring iron ore during the steel market downturn at the start of this decade. Finding spodumene has proved easy, unlike getting the capital and operating cost structure right to remain prosperous during a period of weak lithium prices.

Given Western Australia is the world’s leading producer of lithium units, it is interesting that just one lithium producer is presenting at Diggers & Dealers – Pilbara Minerals – to wave the flag for other proponents and attending companies such as ioneer and Core Lithium.

As BHP’s Eddy Haegel told media during a visit to Nickel West’s Kwinana nickel sulphate plant south of Perth on Friday, lithium is not for the Big Australian.

Haegel used Diggers a few years ago to announce Nickel West’s transformation from BHP problem child to surprise turnaround story and the miner’s entrée into the new energy metals world.

This rebirth is driven by Nickel West’s integrated nickel sulphide mine-to-smelter-to-refinery network that takes ore from the northern Goldfields and processes it into the closest thing we in Australia have to an actual battery ingredient.

“We think in the medium to longer term the margin will be sticky for nickel and it is an attractive commodity,” Haegel was quoted in the AFR as describing his appetite for nickel, in contrast to lithium which BHP considered to offer “no sustainable premium”.

Time will tell.

But there has been a resurgence of investor interest in nickel sulphide plays. Joining Haegel at the lectern today will be Independence Group (which took investors on a visit to its Nova nickel mine on Saturday) and Western Areas, while Panoramic Resources follows tomorrow and Mincor Resources (granted a speaker’s slot after Sandfire Resources’ copper takeover target MOD Resources withdrew) on Wednesday.

Not presenting but expected to attract significant investor interest is exhibitor St George Mining, arguably the most advanced and highest-grade nickel sulphide explorer on the ASX.

Speaking of copper, Sandfire’s growth-through-acquisition move – MOD – means the only other pure-play copper producer to join Sandfire as a presenter this year is Aeris Resources.

TRADING STRATEGIC BLOWS

Gold has benefited from Donald Trump’s trade-war-by-Twitter – just ask The Perth Mint CEO Richard Hayes, a long-term partner of Diggers & Dealers, who last month celebrated the launch of the Mint’s NYSE-listed gold ETF.

But the rest of the world is watching with bated breath to see what sustained impact the US-China battle will have on global economic growth – and therefore commodity prices in general.

One outcome of this trade war has been the crystallised realisation of the dominance of China in the rare earths space.

No wonder there is significant interest in Lynas Corp, one of only two rare earths producers in Australia and the recipient of a $1.5 billion takeover offer from Wesfarmers (Wesfarmers, incidentally, disagrees with BHP’s view on lithium, as made clear by its agreed $776 million takeover of lithium proponent Kidman Resources).

Lynas mines rare earths at Mt Weld in the northern Goldfields and sends the raw product for processing to Malaysia. Mt Weld is a world-scale deposit that would be considered as strategically important by the Trump administration.

Further north in the East Kimberley, Diggers exhibitor Northern Minerals is producing heavy rare earths, a source of dysprosium that is a vital component of permanent magnets used in electric vehicles. Northern Minerals’ Browns Range mine is the only non-Chinese producer of dysprosium, something investors are beginning to appreciate.

Rare earths won’t dominate talk during tonight’s traditional cocktail party in the Diggers & Dealers marquee. But they serve as a reminder these next few days that a golden story doesn’t have to contain gold.

Peter Klinger is Cannings Purple’s Director of Media Strategy. He has provided strategic communications advice on more than $1 billion worth of corporate transactions over the past year. Peter is a former Business Editor of The West Australian and has also worked for The Times (London) and the Financial Review. Contact Peter

Cannings Purple’s market-leading Investor Relations team will be on the ground in Kalgoorlie-Boulder for the full three days of Diggers & Dealers.

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