By Rachel Dally-Watkins
2 April, 2015
WHILE the gold mining industry experienced a tumultuous past year, Doray Minerals managing director Allan Kelly said that, for his company, not a lot had changed thanks to a three pronged approach to weathering the uncertain market.
Speaking at a WA Mining Club lunch in late March, Mr Kelly said his company’s focus on sustainable gold production, company management and exploration success had secured a “solid financial performance” for the first half of financial year 2014-2015.
Capital expenditure to set the company up for the second half of 2015 and lower underground grades at Andy Well meant that the company “always knew the first half of this financial year was going to be a little tougher,” Mr Kelly said.
Despite this, Doray had “record production in the December quarter [and] improvements in pretty much every metric”.
Given the improvements in head grade, costs and margin, Doray upgraded its financial year 2015 production guidance to between 85,000oz and 90,000oz of gold at C1 costs of between $600 and $700 per ounce.
The Deflector gold project, acquired through the takeover of Mutiny Gold in February, was part of the company’s plan to minimise mine risk and achieve sustainable production, Mr Kelly said.
“[As well as sustainable production, there is] company management – for us that’s about minimising the amount of equity we need to raise; [this means] getting some cash flow from existing projects and also using debt to build projects because we’ve got a quick return,” Mr Kelly said.
“Once we’ve built the project and we’ve paid down debt we can start returning some of that capital back to shareholders.
“And a key component for us will always be exploration, because that’s where you can create a lot of value very quickly.”
Mr Kelly confirmed Doray expected Deflector to enter production by this time next year, effectively doubling the company’s annual gold output.
“[When Deflector comes online,] we will get a step-change in our production; we get a reduced average all-in sustaining cost and…we increase our mine life.”
Mr Kelly concluded his presentation by discussing “the good, the bad and the ugly” of current gold market.
“In terms of the good…the weak Aussie dollar has been very good for gold producers…since October, because of the [falling] exchange rate, the Australian dollar gold price has jumped up about $250 an ounce, whereas the US price has…basically stayed level.
“So profitable ASX gold producers are good value because of the weaker dollar and because they’re making money.”
Mr Kelly said the second good aspect in the current market was lower diesel price, which had dropped about 30 cents per litre since October.
He said the impact of this was particularly significant for miners in remote areas who generated their own power and use diesel underground.
However Mr Kelly stated that there was always bad to take along with the good. In this case, it was the value of investment in Australian companies that was problematic, with shares purchased prior to the drop in exchange decreasing in value.
He also said there was a lot of uncertainty surrounding the royalty review, and that was reflected in investor confidence.
“But the ugly is the exploration, or the lack of it,” he said.
Mr Kelly said greenfield exploration had tapered off in the last couple of year, with brownfield exploration faring even worse.
“Everyone knows that if you don’t explore, you don’t drill holes, and if you don’t drill holes you don’t find deposits.”
He said the negative impact increased royalty rates would have on exploration spending was a key point many companies were trying to get across to government.
“Exploration creates great value for the companies and shareholders involved,” Mr Kelly said.
“You never know when the next discovery is around the corner.”