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Gold sector desperate for new discoveries


Essential IR Insights Newsletter - April 2023


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According to Market Intelligence, April 2023


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Gold sector desperate for new discoveries

Evolution Mining Ltd. hopes to spur a new wave of investment by larger gold producers in juniors to uncover the next generation of mines with its recent A$2.5 million cash injection into newcomer Riversgold Ltd.

"If you ask any gold company whether they consider discovery to be a core part of their strategy, I suspect you will get an unequivocal response that it is," Executive Chairman Jacob Klein told delegates Aug. 7 at the Diggers & Dealers Mining Forum in Kalgoorlie, Australia.

"But again, success in this area has been elusive and unfortunately the evidence suggests, like in the area of M&A, that it has largely been a value destructive effort."

"Unfortunately there seems to be an absent consistency of behavior that when the going gets tough, discovery spend is almost always considered discretionary and therefore one of the first things that is cut."

Between 1997 and 2011, there were just 60 gold discoveries exceeding 2 million ounces globally. These new discoveries account for about 500 million ounces of gold or copper-gold.

"Interestingly, close to half these ounces were in much sought-after porphyry-style of mineralization, but the harsh economic reality is that only one of these porphyry discoveries made it into commercial production and that is Rio Tinto's Oyu Tolgoi copper-gold mine in Mongolia," Klein said.

Evolution revealed last week that it had agreed to become a cornerstone investor in Riversgold, which has launched an IPO to raise up to A$8.0 million and list on the ASX.

The executive told reporters on the sidelines of the conference that there needs to be more of these types of deals done between the larger gold producers and the juniors.

"I kind of think that being an independent listed vehicle without support and access to your skills and things is a model which is really hard," he said.

"So I think we can do better as a sector to sort of incubate and support the growth and development of juniors in a slightly different way."

"I don't think we're going to go out and peg greenfield ground ourselves, so it's going to be in partnership with others."

Klein said the decision to invest in Riversgold was prompted by the location of the company's Western Australian assets, which lie north of Evolution's Mungari operation, as well as the caliber of the people running the company.

Riversgold is led by Doray Minerals Ltd. founder Allan Kelly and former Sirius Resources NL Executive Director Jeff Foster, both of whom have been involved in major discoveries.

"We like this district," Klein said. "They've got a track record of exploring and success. We thought it was a good idea."

Riversgold Managing Director Allan Kelly told S&P Global Market Intelligence that there are currently not many "good, dedicated greenfields gold stories."

"The big guys are not doing much greenfields exploration at all," he said. "So we think there's a bit of a gap in the market at the moment. We're hoping we can fill that and get some of these new projects coming into the pipeline."

Riversgold has exploration projects in Alaska, Australia and Cambodia.

According to Kelly, exploration funding needs to come from the majors because private equity funds are steering clear of investment in early-stage projects.

"Things like [the Evolution investment] is a key step there, getting some of the gold producers that have got cash but are not doing the exploration to take a punt on some of these projects rather than funds," he said.

"The larger funds won't fund exploration. Some of the micro funds will, but we need exploration. We've had a few projects now in the last few years that have gone from that development/construction phase [to production]. We need the things coming in behind that because you can't see too many of the next generation."