Resources fund manager Widdup says bust is sowing seeds of impending boom

Barry FitzGerald attends the Resources Rising Stars conference, where fund manager Hedley Widdup explains why he loves busts, Northern Star chief Bill Beament says his company is three years ahead of the pack when it comes to organic growth and Kin Mining tells investors to buckle up for the ride.

Hedley Widdup, investment manager of the ASX-listed junior-focussed investment group Lion Selection, wasn’t joking when he told the Resources Rising Stars conference on the Gold Coast that he really appreciates a big bust.

He was quick to point out that he was talking busts in the investment sense, and how a big bust leads to new investment opportunities.

First up, a deep busts discount everything. Then it leads to a capital strike where people stop building things and more importantly to the junior resources sector, they stop exploring.

“You don’t drill you don’t find, and if you don’t find you don’t mine.’’

As a result, Widdup reckons the emerging boom we are entering could be longer and steeper than some of the booms we have seen historically.

“You want to be buying at the bottom of the boom. And that is where we are.’’

So it wasn’t quite the stronger for longer mantra of the decade long mining boom that got killed off in 2011. But it was as good heart starter for the 700 investor-types that took in the two-day conference at the RACV Royal Pines resort, in between a round of golf, and a pool side drink or two.

Beament on elephants and Barcelona

Northern Star’s Bill Beament is a regular at the RRS conference and can be relied on to inject a bit of enthusiasm in to proceedings.

It was no different this year, with the managing director of the $2.8bn gold production machine that Northern Star has become telling the punters that there was an elephant in the room - the sharp decline in reserve life of the world’s biggest gold miners.

In the last five years the reserves life of the world’s top five gold producers has declined by 37 per cent. What’s more, their gold production is also forecast to decline by 20 per cent by 2021. Despite all that, they have been slow to take action.

It goes to what Widdup said about the mining industry’s now thawing capital strike. Merger and acquisitions can provide a quick (but costly) fix. Organic growth through stepped up exploration is the other way to fix the problem. The trouble is that exploration expenditure suffered during the capital strike.

But the gold majors can see the train coming and are responding, not with M & A but with exploration. Beament is just back from the Bank of America Merrill Lynch metals and mining conference in Barcelona and reported back to the Gold Coast punters that it was the first major conference in  seven years where exploration was front and centre.

“It was an absolute light bulb moment for the sector,’’ Beament said.

Beament then took particular delight in saying that the problems of the gold majors were not shared by Northern Star. 

In the last three years Northern Star has spent $180m on drilling. “So when I was talking at BofAML and every else was talking about exploration, I said guys, we’ve done 3 years of drilling at $60m a year. We’ve done it and the results will go in to our reserve and resource update in early August.’’

Last year Northern Star notched up a 33 per cent increase in reserves to 2 million ounces, at a cost of $50 an ounce. And it has got to be said that that market is hanging out the scale of the increase to be announced in early August. It will be big. How big is the question. Beament was kind of helpful, saying it would be a material upgrade.

While the upgrade will address the mine life concerns that some have had with Northern Star, the real game changer is going to be the strategy update that will accompany the good news on reserves in early August. It will spell out the group’s strategy and growth plans for the next decade.

Buckling up at Kin

It fell to Kin Mining’s (ASX:KIN) Don Harper to fill the final speaking spot at the conference. It’s a tough gig as the weary punters know full well that an early exit will get them to the head of the queue at the after party.

But they stuck around when Harper made clear just how excited Kin was about the game-changing potential of its high-grade Lewis discovery in April, part of its 50,000 ounce-year Leonora gold project (LGP) development, with first production slotted for mid-2018.

Lewis was previously regarded as being prospective for supergene mineralisation, handy but no game changer. But the April hits of high-grade primary gold suggests it could represent the top of a large mineralised shear system in a part of the world where they are known to go to great depths, like down the road at St Barbara’s Gwalia mine (1,500m and still going).

The beauty of Lewis is that it has the potential to sweeten the grade of material to be fed to the LGP. So with the same mining and treatment rates, gold production could be much higher than  the base case of 50,000 ounces a year. How much higher is guesswork at this stage.

But given the seriously high nature of the hits reported to date, 75,000 ounces and more would not surprise. More drilling is underway and Harper was left to say he couldn’t say too much at this stage, a kind of interesting comment in itself given Harper mentioned he’d been talking to his geo on the ground.

However he did finish up advising people to buckle up for the ride. Kin was a 20c stock before the April discovery at Lewis. It took off to 45c in the initial response and has since settled back at 38.5c for a market cap of $60m.

Confirming results from Lewis, and real chance of repeat discoveries of similar high grade structures along the 12km shear zone under its control, would see Kin and its members off to the races as it were.

And talking about the races, this weekend is a big one for Leonora, population 800. There is a two day race meeting, the running of the Golden Gift footrace, and for the more culturally inclined, the awarding of the Leonora art prize, coveted as it is in those parts.

Kin is helping the feel good couple of days – the nickel boys in the part of the world are doing it tough – by sponsoring the Kin Mining Handicap. It is not a form guide to city races, but it isn’t meant to be either.

Busy at Capricorn

One of the busier booths at the conference was that of the gold developer Capricorn Metals (ASX:CMM).

It seems the punters liked the simple story of the $50m company (9c a share) working its way towards becoming a 100,000 ounce a year producer from its Karlawinda gold project in the Pilbara, 65 kms south-east of Newman.

Sporting a recently upgraded resource of 1.1m ounces, Capricorn’s definitive feasibility study is due to be released in the September quarter and the expectation is that it will lead to a fully funded decision to start construction early next year, with production to follow 12 months later.

Low stripping ratios and an early boost to cash flows from a laterite cap are expected to underpin attractive economics notwithstanding the 1.1 g/tonne gold grade. Then there is the upside from the potential resource expansion that could come from testing of adjacent trends to those covered in the DFS.

Capricorn executive chairman Heath Hellewell told the conference that Karlawinda could well be the first mine in what could become a new gold province for WA with multi-million ounce potential. Pinning that down requires more exploration and that’s just what Capricorn is doing with a $3.5m exploration budget this year.

Regis (ASX:RRL) is a specialist in these type of projects and was on the Capricorn register with an 8 per cent stake. It has quit the position but that’s no reflection on Karlawinda as Regis is known to be focussing on giving its McPhillimays gold project in NSW more momentum.

While Regis is gone, the eagle-eyed private equity group Hawkes’ Point Holdings is a recently arrived 10 per cent shareholder after a placement at 11.7c a share. Presumably it likes the simplicity of the upside story for Capricorn as much as the Gold Coast punters did.