IPO Review: Golden Mile Resources (ASX: G88)

IPO Review: Golden Mile Resources (ASX: G88)

Company Overview

Golden Mile Resources (ASX: G88) is an explorer and developer of gold and base metals (nickel-cobalt). The business has acquired multiple project areas in Western Australia, with the majority of its tenure located in the north-eastern Goldfields region around Leonora.

G88 hold 39 granted tenements (35 prospecting licences, 4 exploration licences), plus a further 2 exploration licence applications. None of these tenements currently define mineral resources. The company’s initial focus is the Quicksilver Cobalt-Nickel Project and the Braemore Gold Project.

The Quicksilver Project spans 15km. It includes an “under explored” surface anomaly of 2km with intercepts over 0.8% cobalt and 2.5% nickel.

Meanwhile, the Braemore Project will focus on 2 key prospect areas for potential open pit and underground mining operations. Several high-grade gold intercepts have been recorded in these regions, including: 12m at 7.13 g/t gold from 84m and 3m at 6.7 g/t gold from 36m.

 

Company Golden Mile Resources Ltd
ASX Code         G88
Website www.goldenmileresources.com.au
Listing Date June 19th
Capital Raising $4.5m
Issue Price $0.20
Market Cap. $10.6m (approx.)
Lead Manager Peak Asset Management

 

Market

 

Gold

According to the Thomson Reuters’ GFMS Gold Survey 2017, gold prices are expected to remain volatile but average US$1259 per ounce throughout 2017. Longer-term price gains are forecast despite further interest rate rises anticipated in the US. Among other findings, global production may taper after 3 record years of production – last year saw 3,222 tonnes.

Figure 1
Cobalt

Cobalt was one of the strongest performing metals last year as supply concerns over stable and ethical sourcing took hold – 60% of global cobalt is in Democratic Republic of Congo, where geopolitical risks are noted. Since January, cobalt has risen approximately 70% to recently top US$25/lb.

In 2016, global cobalt demand was 100,000t. This is forecast to rise to 130,000t by 2021, as 75% of lithium-ion batteries are expected to contain cobalt, and electric vehicles may consume 16.9% of refined cobalt. Macquarie Research forecast deficits increasing from 885t in 2018, to 5,340t in 2020.

cobalt chart
Figure 2
Nickel

Nickel prices climbed 17% last year, and global consumption exceeded supply by 100,000mt. Geopolitical events in Indonesia and the Philippines have recently acted as a point of volatility for the base metal.

Fitch Group predict nickel prices will average US$10,500/t in 2017 before reaching US$13,000/t in 2020. The projections are attributed to China’s public infrastructure spending, and vehicle production growth. Fitch’s analysts also expect a 1400t global surplus this year, well below 2013’s surplus when prices exceeded US$15,000/t.

Figure 3

 

Offer Details and Use of Funds

The company is issuing 22.5m shares at $0.20 each to raise $4.5m. G88 anticipate funds will suffice for 2 years of operations, including exploration on the tenements and working capital.

Figure 4

 

Company Operations

 

Tenements

Golden Mile Resources tenements fall under 2 major projects in the ‘Yilgarn Craton’ – the Northeastern Goldfields Project, and the Regional WA Project. The area is known for an “Archaean-aged granite-greenstone terrane”, where gold, nickel, plus other base metals and exotic resources are prominent.

Figure 5 – Benalla and Chain Bore are part of the Leonora East Project; G88 hold 50% interest in Kaikoura’s tenements; Gidgee tenements above are prospecting applications

In exchange for the respective tenements and associated expenditure, Golden Mile Resources will pay Legendre Vendors $50,000 and a “Net Smelter Return Royalty” of 1%, while Gambit (Avenger Projects Ltd) will receive $30,000 and a 1% “Gross Value Royalty”. Both vendors have also received shares and options (refer ‘Capital Structure’).

Proposed project expenditure is shown below and complies with expenditure statutes for tenements.

Figure 6

 

Exploration and Evaluation Program

The company’s project pipeline categorises all projects as shown in Figure 7.

Figure 7

 

Quicksilver

Located in the south-west of WA, 2km away from the nearest rail head, Quicksilver is the company’s flagship project. The main focus post-listing will involve drilling at the ‘Garard’ outcrop to define a mineral resource. Limited surface drilling has identified a 2km anomaly with intercepts of 4m at 0.68% cobalt from 2m; 19m at 1.08% nickel from 71m; and 3m at 1.92% nickel from 72m.

Golden Mile Resources intend to proceed with resource estimation, metallurgical studies, geochemical sampling, and geophysical surveys to target mineral-rich areas and identify new prospects among 15+km of strike.

Figure 8

 

Braemore

While there are multiple prospects, Golden Mile Resources 2 key focus areas are the ‘Natasha’ and ‘Sophie’ prospects where high-grade intercepts have occurred. Drill testing targets are being established. Mineral resource estimates would follow infill drilling and allow production options to be assessed.

Figure 9

 

Kaikoura

G88 has identified 2 trends totalling 14km+ of strike with potential near-surface mineralisation. Cobalt has yet to be fully assessed in this area but historical nickel exploration and adjacent rock layers are being assessed to identify drill test targets. The explorer has noted its works will include resource estimation and a development program.

Figure 10

 

Leonora East, Gidgee, Darlot

Leonora East: Chain Bore and Benalla offer 40km of strike with established drill test targets (Cow Bell Dig, Giant Well, Benalla Hill). Intercepts at Cow Bell Dig included 3m at 11.4 g/t gold from 21m. G88 will undertake infill drilling and analyse historical prospects to identify further targets. Nearby, KIN Mining recently recorded several high grade intercepts.

Gidgee: The Western side of the Gum Creek greenstone belt is considered “poorly explored” but is said to indicate a polymetallic nature. G88 is awaiting approval for 2 exploration licences here. Past gold exploration identified targets, while further targets will be based on evaluation of historical exploration.

Darlot: The site borders a tenure where Goldfields Limited has explored to its boundaries. A 1.5km anomaly has previously been identified in this area with up to 0.6 g/t gold at surface.

 

Company Management

Name Title Experience Salary
(excl. rights)
Mr Timothy Putt Executive Director Geologist with extensive experience in the resources sector through a multitude of projects, deposit types and mineral categories. Also involved in corporate management and IPOs. $170,000 p.a.

(+500k shares &

750k options)

Mr Rhoderick Grivas Non-Executive Chairman Geologist with 25+ years in the resources industry. 16 years of ASX board experience includes mining/explorer directorships. $50,000 p.a.

(+750k options)

Mr Phillip Grundy Non-Executive Director Legal partner specialising in corporate law, M&A’s. Legal advisor to local and international companies on ASX/listing matters, local investment, M&A activity. Directorship with BEE. $40,000 p.a.

(+166,666 options)

Dr Koon Lip Choo Non-Executive Director MBA, BSc Applied Mathematics, PhD, Doctorate in Business Administration in Investment Psychology. Extensive trading and ownership of investment-related businesses. $40,000 p.a.

Table 1

Managing Geologist Paul Frawley is part of Golden Mile Resources key management personnel. He has over 10 years’ experience in mining geology as a geologist and consultant, spanning local and foreign operations and a variety of mineral categories.

 

Capital Structure

Prior to the IPO, 26,575,001 shares were issued including a combined total of 3.875m among the vendors of the tenements. Investors will be issued 22.5m shares under the offer. Free float will be 43%.

Options specify an exercise price of $0.30, with expiry ranging between 3-4 years after issue.

Existing shares, and the majority of shares which may been issued via the exercise of options, will be subject to escrow for either 12 months from issue, or 24 months from quotation.

Figure 11

 

Substantial shareholders will see their stake adjusted as follows.

Figure 12

 

Financials

The directors anticipate on incuring ongoing operating losses due to the uncertain nature of G88’s operations. Golden Mile Resources finances are dependent upon the “successful exploration and development of the tenements”, securing relevant licences, and regulatory approval.

Of particular note, $553,841 in exploration and evaluation expenditure has been classed as a non-current asset.

 

Risks

Company specific risks include:

  • Operational Risk:
    • Limited operating history, ongoing losses expected;
    • No mineral resources are defined on the tenements;
    • Sites might not result in notable mineral discoveries, nor economically viable developments;
    • Unsuccessful exploration, including lower than expected mineral grades, may reduce the value of the tenements;
    • Inaccurate resource estimates;
    • Technical or metallurgical difficulties, environment issues, infrastructure disruptions, extraction issues, unforeseen events
  • Licences and Regulations:
    • If licence applications and renewals are not granted, operations may change;
    • G88 cannot guarantee it will maintain or meet the conditions of its tenement licences;
    • Regulations require licensees to relinquish a portion of their tenements periodically;
    • Consent may be required from lawful land owners before exercising rights over land. Native Title may also apply;
    • Environmental laws may restrict activity or project viability;
  • Minerals Market: Competition and other market forces could influence G88’s propensity to continue mining;
  • Third Parties: Golden Mile Resources depends on other parties meeting their obligations or providing approval for certain tenements (e.g. Quicksilver, Gidgee)
  • Capex Requirements: With no revenue expected in the near term, the company may require further capital to continue or develop exploration activities
  • Acquisition Risk: New business opportunities may require additional funding. Acquisitions and their funding cannot be guaranteed.
  • Key Personnel: The departure of highly qualified key staff could disrupt operational momentum
  • Share Register: The exercise of options may lead to possible shareholder dilution

 

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The information contained on this website in no way reflects the opinions of IPO Society. It is provided for informational services only. It does not constitute an offer to sell or a solicitation to buy any security or other financial instrument. The information is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. Detailed information may be needed to make an investment decision, for example: financial statements; a business plan; information about ownership of intellectual or industrial property; or expert opinions including valuations or auditors’ reports. The information contained on this website is not intended to be the only information on which an investment decision is made and is not a substitute for a disclosure document, product disclosure statement or any other notice that may be required under the Act, as the Act may apply to the investment.

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