Barry Fitzgerald: Corporate tensions drive talk of gold PNG by Geopacific

Gold’s move to record levels is bringing previously overlooked ASX-listed researchers and developers out of the shadows.

Geopacific Resources (ASX:GPR) this is an example. Shares jumped from 1.5 cents at the start of the year to 3.2 cents for the week, up 113%.

It is a well-known name due to the Woodlark gold mining project on the island of the same name in eastern PNG.

For over a decade, there were various management teams attempting to develop what is now 1.67 million ounces of gold.

But for one reason or another this did not happen. There’s now a powerful tailwind in the form of gold over $4,200, giving Woodlark all the incentive he can to make a comeback.

Happy Return

Garimpeiro advises to “go back” because the island has a long history of gold mining, dating back to the first official discovery in 1895.

The Gold Rush led to the listing of two companies in Australia: one on the Sydney Exchange (1899) and one on the Charters Towers Exchange (1908).

World War I began after “official” production of about 220,000 ounces. There was then a long break until the 1970s, when BHP had the brilliant idea that Richard Nixon’s decision to end the gold standard in 1971 would benefit long-term gold prices.

There has since been a change in ownership, with Geopacific becoming the new landlord after infighting between 2017 and 2019.

He’s been busy lately too. A recently released scoping study for the $326 million, 95,000 oz/yr mine development showed a pre-tax net present value of $625 million at a gold price of $2,900 per ounce.

Total mine life sustaining costs are estimated at $1,534/oz of the 1.14 million ounces of gold that will be produced over the initial 12-year life of the open pit mine. Trust in the resource is high: 97% belong to the measured and specified category.

Using the end-June gold price of $3,505 per ounce, the pre-tax NPV rises to over $1 billion and the internal rate of return jumps to 58.5% pre-tax from 40.5% at end-June gold prices .

And here we are with gold priced at over A$4,200 an ounce.

Perspective PNG

This is interesting material for a company with a market capitalization of about $38 million. If Woodlark had hit the Western Australian goldfields, Geopacific’s market capitalization would have been many times higher.

But it’s not in WA. PNG has its problems, as do most other places. And the project’s subsequent owners appear to have done everything right when it came to interacting with local landowners.

Previously, more than $100 million had been invested in things like drilling, development research and infrastructure, as well as relocating communities near the main mine and sponsoring a medical clinic.

Garimpeiro also notes that Geopacific has an interesting shareholder registry. Private equity group Deutsche Balaton/Delphi/Sparta owns an impressive 42.3%.

But the recent listing of Hong Kong Stock Exchange-listed Lingbao Gold through a $2.9 million private placement has led to what could be described as some competitive tension.

In 2023, the Chinese group produced 725,000 ounces of gold from operations in China, Mongolia and Kyrgyzstan.

It said the investment in Geopacific is “a key step in our international strategic plan.”

Garimpeiro wonders if Lingbao is targeting the Woodlark project. Therefore, he has no hesitation in declaring that Geopacific is now a “situational” action with all the ensuing consequences.