Kingsgate Consolidated (KCN) is a gold miner, operating in South East Asia, South America and Australia. The company’s major operation is the Chatree Mine in Thailand, and it also has the smaller Challenger Mine in South Australia.

Rising cash costs squeezing margins

In late January, KCN revealed a 13.4% slide in 2Q13 gold output relative to the same period a year earlier. Compared to 1Q13, gold output rose slightly by 4%.

Production was affected by the temporary closure of the Chatree North Expansion Plant (Plant 2) and interruptions at Challenger following the establishment of two new mining fronts.

The biggest disappointment with the result was another rise in the group’s cash costs. Cash costs rose 37% from 1Q13 to US$975/oz. However, compared to 2Q12 costs surged 60%.

KCN attributed the cost squeeze to lower ore grades at Chatree and ore sourced from an area of Chatree’s Pit A that was known to have lower recoveries.

The poor 2Q13 production result contributed to a 76% slide in 1H13 net profit to $8.1 million. Revenue was up 10% on-year, however the growth was driven primarily from stronger gold sales. Weaker output from Challenger and a lower realised average gold selling price detracted from the growth in revenue.

Gold prices trending down

The price of gold has weakened noticeably in recent months. Spot gold is trading around 7% below KCN’s 1H13 average realised selling price of US$1676.

The outlook for the precious metal has declined amid signs of weakening physical demand and diminished prospects for further monetary easing. In an example of waning demand, the US Mint sold 62,000 ounces of American Eagle gold coins last month.

This was much lower than the sale of 80,500 ounces in February and 150,000 ounces in January. Holdings in gold-backed exchange-traded funds are also 6.9% weaker in the year-to-date.

Furthermore, with the world economy stabilising, central banks like the US Federal Reserve are less inclined to implement additional monetary easing measures.

In our view these are among the key factors that will handicap gold prices, and by extension, KCN’s revenue growth.

Outlook

KCN stuck to its FY13 gold production guidance of between 200,000 and 220,000 ounces. 1H13 production totalled 90,413 ounces, meaning KCN is relying on stronger 2H13 output numbers in order to meet its guidance. Although Chatree’s Plant 2 is now back online, development at Challenger is expected to continue.

Also, the limited availability of stoping areas at Challenger the company highlighted in its 2Q13 production report indicates difficulties accessing the ore body being mined. Therefore we don’t share KCN’s optimism that full year production guidance will be met.

Moreover, the upward trend in its cash costs is coming at a time when gold prices have been retreating. This is creating pressure on cash margins and will ultimately translate into poor earnings in our view.

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Regis Resources (RRL) is an Australian gold production and exploration company. Its management team has a successful track record of developing mid-sized gold operations within Australia and Africa.

RRL’s flagship asset is the Duketon Gold Project in Kalgoorlie, in WA. The project comprises of 387 leases that cover over 2,030 sqkm of ground. These leases contain three main deposits in Moolart Well, Garden Well and Erliston.

FY12 results

RRL’s only producing mine is the Moolart Well. The group reported June quarterly gold production of 26,228 ounces, at a cash cost of $532 (pre-royalties).

Although cash costs rose slightly from the March quarter’s $519, RRL’s costs were still lower than its major peers due to the higher reserve grade mined and the low-cost nature of its operations.

RRL had guided for FY12 production to be between 95,000 ounces – 105,000 ounces, but beat its own guidance with 105,413 ounces produced. The company reported an FY12 net profit of $74.7 million, which was almost double FY11’s result and came on the back of a 58% jump in gold sales.

Projects with significant potential

The Moolart Well mine is projected to consistently produce around 100,000 ounces of gold a year for at least the next 4 years.

The company began producing from Garden Well earlier this month, and has forecast output from this mine to be between 220,000 240,000 ounces in 2013, at a cash cost of $400 – $450 an ounce.

RRL expects to commence development of the Rosemont Gold Deposit in the coming quarter. Taking into account Garden Well’s output and the development of Rosemont, RRL expects to produce over 400,000 ounces of per annum, significantly higher than FY12’s number.

Outlook

With FY12 now over, FY13 and FY14 earnings expectations will become more prominent in valuation models.

RRL is planning a dramatic increase in production over the coming years, which is likely to translate into a massive increase in earnings and cash flow from FY13.

With Garden Well and Rosemont about to ramp up output, the catalysts are in place for RRL to re-rate to a higher price earnings multiple, which is expected to translate into further share price gains.

Resolute Mining Announced Intends To Increase Production FY13 By 14%

Resolute Mining Limited explores for, produces and develops gold in Ghana, Mali Queensland and Tanzania.  The Company’s gold exploration projects include Obotan, Syama, Ravenswood and Golden Pride.

Small cap Resolute Mining today announced that intends to increase production in FY13 by 14% to 415,000 ounces of gold.

The group also forecasted a rise in cash to $830 per ounce over the same period.

Its unaudited FY12 results revealed production of 398,452 ounces at a cash cost of approximately $750 per ounce.

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PanAust Commences Ore Processing In Laos

PanAust Limited explores for gold and copper through its exploration projects in Laos and Thailand. The company is listed on the Australian Stock Exchange and is a member of the SP/ASX200.

PanAust announced that it has commenced ore processing at the Ban Houayxai operation in Laos.

PanAust is targeting annual gold production of approximately 100,000 ounces and 700,000 ounces of silver.

Ramp up of production is expected to be rapid and the current estimate for 2012 production is approximately 85,000 ounces at a cash cost of between US$550 and US$600 per ounce after credits for about 200,000 ounces of silver.

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Saracen Mineral Holdings Ltd (ASX:SAR) is an Australian mid-tier gold producer based in WA.

The company bought its major assets off Sons of Gwalia back in 2006 – when the latter went bankrupt – and has done well to develop the assets and move from an explorer to a producer.

SAR’s key assets are located in the South Laverton mining district, 120km North-East of famed gold mining town Kalgoorlie, in Western Australia. This includes around 200 granted tenements and applications pending spread over 2,500 square kilometres.

Since purchasing these assets, SAR has spent money exploring the tenements and developing the projects to production.

The company completed a Definitive Feasibility Study on the South Laverton gold project in December 2008 and started producing gold in early 2010.

Ramping up

Having started production in April last year, SAR has achieved strong production quite quickly and established itself as an enticing small producer.

The company produced 111,163 ounces of gold in FY11, its first full year of production, at an average cash cost of $738 an ounce.

SAR has forecast production of around 125,000 ounces in FY12 at costs of around $700-$750 an ounce. So far FY12 is off to a solid start, with the company recently releasing its September quarter Activities Statement. Production of 31,790 ounces at cash cost of $730 was right in light with guidance.

By de-watering some of its flooded pits, SAR hopes to ramp up production to over 160,000 ounces a year by 2015.  Management has proven to be conservative and reliable so far, offering some reassurance in what is a speculative sector.

Saracen Mineral Holdings has managed significant upgrades to its gold resources and reserves, presently standing at around 3,300,000oz and 880,000oz respectively.  Most of the reserves are open-pit, which allows for easier and cheaper mining.

The sizeable resources and potential underground mining pave the way for a long mine life, while the company has extensive exploration potential to upgrade this further.

The hunt for Red October

SAR’s has planned to spend $35 million on exploration activities in FY12, a sizeable budget given the size of the company.

The company recently completed a placement, raising $50.2 million and helping the company to end the September quarter with $60.3 million in net cash and no debt. A share purchase plan and subsequent placement have raised a further $15 million since.

Together with cash generated from production (almost $10 million last quarter), SAR will not need to raise significant fresh capital to fund this.

Much of SAR’s exploration efforts will be in exploring its Red October project. The company expects to have completed dewatering the pits shortly, to be followed by underground development work.

Previous drilling results have confirmed the continuity of ore body at Red October and further exploration efforts could lead to significant resource upgrades relatively quickly.

Production from Red October is expected to commence in FY12, but potential major exploration success could provide a major share catalyst before then.

Outlook

SAR only started gold production just over 18 months ago but is already generating output of around 125,000 ounces a year.

Incremental production upgrades could come in the next few years, but the significant upside potential comes from the development of its Red October operation.

While SAR offers significant exploration upside, its existing production provides extra protection, and suggests that the market could re-rate the stock and push SAR shares much higher than current levels.

SAR is a defiantly a stock to watch.

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Ramelius Resources (ASX:RMS) is a Western Australian-focused unhedged gold producer with mining operations at Wattle Dam near Kambalda and milling facilities at Burbanks near Coolgardie.

Wattle Dam is the group’s cash cow, producing solid amounts of high grade gold at a low cost.

With Wattle’s mine life potentially coming to an end, RMS also has its lucrative Mt Magnet project, which will come into production this year.

RMS is benefitting from its strong operations and boom times for gold. The group is a low-cost operator with no debt and in a strong financial position with $90 million in cash on hand.

Golden production

RMS produced just over 100,000 ounces (oz) of gold from its Wattle Dam gold mine for the full year.

On the back of a solid June quarter, total gold production for the mine was over 200,000 oz, including production from the former open pit of 51,000 oz.

The Mt Magnet project north east of Perth is proceeding with the planned schedule for gold production to begin in January 2012.

RMS currently has $100 million in cash and gold on hand.

The stock will also benefit from a surging gold price.

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Northern Star Resources (NST) explores and develops mineral resources in the highly prospective Kimberley region.

NST is an emerging gold producer and explorer with a market capitalisation of around $120 million.  Its main project is the Paulsens gold mine which it purchased for $40 million.

NST has been one of the hot shares in recent months, more than doubling its share price since last August.

The miner expects to release a resource upgrade later this month and a new mine plan for Paulsens this year.

NST recently acquired the 668,000 ounce (oz) Ashburton Gold Project which is close to the Paulsens mine.

Ashburton acquisition

NST agreed to purchase the Ashburton Gold Project from Sipa Resources which will be paid for via a royalty on future production.

The deal includes 668,000oz resource and the Mt Olympus Gold Mine, which has previously produced 340,000oz.

This puts NST in a prime position to increase production rates, project life and create shareholder wealth through exploration.

Ashburton is a strategic asset for NST as it provides an immediate resource boost to the miner’s resource base.

Bright future

The miner is debt free after paying a final $2.5 million production royalty on the Paulsens gold mine acquisition.

Paulsens produced a record 48,559 oz in the December half, generating revenue of $65.4 million.

Cash costs for the half were $510 per oz which is low when compared to other Australian gold miners.

Northern Star Resources repaid the $40 million acquisition of Paulsens in just seven months.

Resources at Paulsens currently stand at 128,700 oz. Added to the Ashburton resource, the total resource from the two is 796,700oz.

Current production is 6,000oz per month which brings in revenue of approximately $8 million per month.

Being unhedged, NST has maximum exposure to the surging gold prices.

Its exploration program at Ashburton is well underway and could deliver a significant resource upgrade as early as this month.

With strong cashflow and a robust balance sheet, NST is in a good position to grow.

Outlook

Gold has gained over 30% this year, reaching fresh record highs this week as tension in North Africa and the Middle East pushes investors towards the safety of the shiny metal.

The metal printed highs of around US$1440 this week and continues to hold its ground well above US$1400.

NST’s strong financial position leaves it well placed for further acquisitions in line with its objective of building a major mining house.

The miner is likely to announce a resource upgrade this month which would give it further upside.

With the potential for further acquisitions and strong gold prices backing the unhedged miner, it will be one of the stocks to watch in coming months.

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Newcrest Mining (NCM) is Australia’s largest gold producer, with mining and exploration projects in Australia, Papua New Guinea (PNG), Indonesia and the US.  NCM is the largest gold producer listed on the Australian share market.

The miner also has a smaller exposure to copper, mostly as a by-product of its gold production.

In its latest production report, NCM announced a 7% increase in gold output in the 2Q11 from a quarter earlier. Copper production of 17.712t was in line with the previous quarter.

NCM attributed the growth in output to higher gold grades and increased throughput.  Cash costs of $440 per ounce were also an improvement over the previous quarter.

However, NCM downgraded FY11 gold production guidance to 2.85 – 2.95 million, from 2.85 – 3.00 million ounces.

Copper output was also expected to fall to 75 – 80 thousand tonnes, from 80 – 86 thousand tonnes.  NCM attributed the downgrades to rain and a suspension of operations at Bonriko in the Ivory Coast.

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PanAust (PNA) is junior miner that holds mineral assets in the Laos and Thailand.  The group was also one of hot stocks in 2010, surging over 50% during the year.

In Laos, PanAust operates the large Phu Kham copper-gold operation, which commenced production of copper-gold concentrate in April 2008.

On 24 January, PNA reported record copper production of 18.871 tonnes for the 4Q10, up 11.5% from the previous quarter.

Copper production was driven by increased recovery rates and above average head grades at PNA’s Phu-Kham operation in Laos.

Gold output increased by 23.7% from the previous quarter, while cash costs declined from US$1.01 to US$0.76.

PNA expects strong mining and production performances to result in 2011 copper production of 62,000 – 65,000 tonnes at an average cash cost of US$0.95 – US$1.05 a pound.

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Avoca Resources (AVO) is a gold producer focused on becoming the next Australian mid-tier gold mining company.

AVO’s base operation is its Higginsville Gold Project in Western Australia, which contains the Trident Underground Mine, AVO’s trump card.

Gold miners have been among the hot stocks in recent months, benefiting from record high bullion prices.

On 1 November, AVO reported its 1Q11 production numbers, with gold output rising 28% on-year to 64,783 ounces.

Cash costs rose to $577/oz from $428/oz a year ago, but this was compensated by an increase in the price of its gold sales to $1360/oz, from $1158/oz.

AVO also forecast an increase in gold output during the 2Q10 to 70,000 ounces.

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