Gold Road Resources Ltd. CEO Ian Murray said the company is looking at acquiring early stage assets in tier 1 jurisdictions of Canada and the U.S. as the Gruyere JV with operator Gold Fields Ltd. has given it the freedom to explore in its own right and was preferable to funding the project with bank debt.
Murray told S&P Global Market Intelligence on the sidelines of a July 26 Western Australian Mining Club function in Perth that the Gruyere joint venture in Western Australia could be a model for the gold industry to develop projects as bigger companies are increasingly looking to partner with juniors.
"Major companies often come in and take over control, but [Gold Fields] brought their skills in as a developer and a producer and free us up to be an explorer, and we've retained 100% exposure to the Yamarna Belt while also doing the exploration within the Gruyere joint venture tenements," he said.
Stuart Mathews, executive vice president for Australasia at Gold Fields, told the forum that his company had "offered something different" in their joint venture, which Murray said was preferable to the traditional bank debt.
"Had we gone down the path of traditional bank debt, with the project CapEx close to the top end of the range — close to A$600 million — we would've had [about] A$400 million of debt and would have had to raise A$200 million of equity, so additional dilution for existing shareholders," Murray said.
"Once we started production, we would've been repaying back those banks, so our greenfields exploration spend for last year and this year would have been zero," Murray said. "Gold Road probably wouldn't exist [other than] a project [building] team and a finance team, nothing else."
Trent Barnett, head of research at Hartleys Research, said that with resource companies seeing holes in their production pipelines up to 15 years out after most of them had "no real development in growth from 2011 until very recently," joint ventures are a "pseudo-easy way to keep your hand on trying to replace that without having too much commitment to the capital."
"Joint ventures are a good way of doing [growth], as you're not paying a premium to acquire [the project or company] so your shareholders don't have to get upset that you paid too much," Barnett said, adding that for juniors, the equity component is "more digestible" for shareholders.
Exploration boost
As a result of the joint venture, Gold Road spent about A$20 million in 2017 on regional greenfields exploration and will spend another A$17 million in 2018 testing 10 new camps as part of greenfields exploration.
Gold Road launched another joint venture in Western Australia with Cygnus Gold Ltd. in March and is now "looking globally for any other early stage projects, given we have cash in the bank and from next year will have strong cash generation [once Gruyere goes into production]," Murray said, though there was no timeline for such a transaction, which would preferably be in the U.S. or Canada.
As of April, initial gold production at Gruyere was anticipated in the June 2019 quarter after being pushed back due to abnormal rainfall in the March quarter.
While Gold Road made the main Gruyere discovery in the second half of 2013, Murray said the story actually began in early 2012 when it started an 18-month exploration program spending A$500,000 on aeromagnetic surveys, reinterpreting gravity surveys and getting "targeting gurus" to work with the company to come up with what was then 10 camp-scale targets across the belt.
By October 2016, Gold Road had delivered the final feasibility study, which Murray said was a record speed at the time for a project of that size and scale.
"As far as we were concerned, the joint venture with Gold Fields de-risked the junior company. It's very difficult for a junior to develop its first gold mine," Murray told the forum earlier.
He said the joint venture enabled Gold Road to be fully funded for the development of Gruyere, which is expected to have all-in sustaining costs of less than A$1,000/oz. At today's gold price, that means generation of over A$600/oz of cash. This will fund Gold Road's exploration across the belt into the future.
The arrangement also allows Gold Road to explore across the joint venture tenements and even allow further exploration in the region to truck the production either to the Gruyere plant or a second development option on the belt.