Two Emerging Gold Producers - De Grey Mining Ltd and Bellevue Gold Ltd

De Grey Mining Ltd (ASX: DEG) and Bellevue Gold Ltd (ASX: BGL) are two emerging gold producers both of which have released studies into developing recently discovered significant gold deposits. Both companies are in the transition from being explorers to gold producers over the next 5 years.

What are the key features of De Grey Mining proposed mine?

DEG is a Western Australian gold explorer and project developer with a market capitalisation of $1.6 billion. DEG has made a large gold discovery at Hemi in the Pilbara in late 2019. This gold discovery is located around 60 kms south of Port Hedland. Consequently, critical infrastructure is currently in place to support a future mining operation including two major sealed highways, two gas pipelines, a high voltage powerline and port all within a short distance of Hemi. This lowers development costs.

On 23 June 2002, DEG announced a mineral resource estimate of 6.8 million ounces of gold with an average grade of 1.1 grams per tonne (g/t) at Hemi. DEG has also made two other gold discoveries located near to the Hemi discovery. These discoveries have total a mineral resource estimate of 2.1 million ounces of gold with an average grade of around 1.8 g/t. These discoveries make up the Mallina Gold Project. The total mineral resource estimate for this project is 9.0 million ounces of gold with an average grade of around 1.2 g/t.

On 5 October 2021, DEG announced the results of a scoping study to develop this resource. Gold production is estimated to average 427,000 ounces per annum over an initial 10-year period. This means the Mallina Gold Project will be in the top 5 producing Australian gold mines. The total capital cost to build the mine (including contingency and pre-strip) is estimated at $893 million and the All-in Sustaining Cost (AISC) is estimate at $1,224 per ounce. The mine is forecast to produce $2.9 billion of free cash flow (post-tax, undiscounted) over the life of mine (assuming a gold price of $2,400 per ounce). The Mallina Gold Project’s estimated post-tax net present value (NPV) with a 5% discount is approximately $2.0 billion (producing a post-tax internal rate of return (IRR) of 49%).

The Scoping Study provides justification that the Mallina Gold Project is commercially viable. Consequently, DEG will now conduct a Preliminary Feasibility Study (PFS). The results of the PFS are expected to be provided in the second half of 2022. The Mallina Gold Project may commence production in 2025 or 2026.

There is real potential that the economics of the project will improve over time for three reasons. First, the Scoping Study does include the 800,000 ounces of gold of largely inferred material within the Study pit shells that was omitted due to lack of drill density. Second, considerable intersections (namely, 173m at 1.6 g/t gold from 366m, 174m at 1.5 g/t Au from 271m and 121m at 1.1g/t Au from 146m) were not included in the Study. Third, DEG’s continuing exploration effort across the Greater Hemi region has high potential to result in new discoveries.

What are the key features of Bellevue Gold’s proposed mine?

BLG is a Western Australian gold explorer and project developer with a market capitalisation of $0.9 billion. The Bellevue Gold Project is located 40km to the north west of Leinster in the Goldfields region of Western Australia.

BGL is developing a high-grade underground gold mine at the Bellevue Gold Project. On 2 September 2021, BGL announced the results of the Stage 2 Feasibility Study. The project is currently under development with the first gold expected in mid-2023. The project has an initial mine life of around 8 years. The mineral resource estimate is 3.0 million ounces at 9.9 g/t gold (which represents one of the highest grade gold mines in Australia).

The Bellevue Gold Project is forecast to produce 183,000 ounces of gold per annum at an AISC of A$1,014 per ounce. The total capital cost to build the mine is $267 million. These costs are low because the new mine will utilise the existing underground mine which was closed in 1997. The mine is forecast to produce $1.3 billion of free cash flow (post-tax and undiscounted) over the life of mine (assuming a gold price of A$2,400 per ounce). The projected cash flow underpins a short payback period of 1.4 years (post-tax). The post-tax NPV with a 5% discount is estimated at $943 million, representing post-tax IRR 62%. BGL is now fully funded into production having recently raised equity and obtained a credit-approved loan to fund construction and development activities over the next couple of years.

There is significant potential to continue to expand the project reserves and life of mine with ongoing drilling. Resources remain open in all directions. Recent high-grade drill results outside of the Stage 2 Feasibility Study include 7.5m at 53.3 g/t gold, 0.8m at 288.1 g/t gold and 2.0m at 26.6 g/t gold.

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