Ten Bagger: Is your explorer serious? This could be the sign they're onto something real

News.com.au

07-05-2025

Welcome to Ten-Bagger, where Lowell Resources Fund chief investment officer John Forwood gives us his take on a sector of the ASX resources market full of value.
This month, John looks at the confidence boost ASX juniors are giving investors by investing in underground exploration declines.
Everyone is hoping to find the real deal when it comes to an exploration stock, one that's looking to turn dollars to gold and back again, not just a well oiled PR machine that's "mining the market".
But how do you know your board has serious confidence in the quality of their deposit.
Lowell Resources Fund (ASX:LRT) CIO John Forwood is seeing one telltale sign that management has real conviction when it comes to an underground development.
And it's a trend that's emerging more and more in recent times.
"In terms of exploration there are probably not too many more significant things you can do than put in an exploration decline," he told Stockhead.
An exploration decline is a big upfront capital investment for a junior explorer or miner.
At an average cost of $15,000 per metre, a 700m decline down to 100m below surface on a 1:7 incline gradient could chew up $10m, Forwood roughly estimates.
But it has the potential to both save costs down the line and massively increase the confidence an investor can have that a resource or reserve will hold up once mining begins.
By getting closer to the source of the mineralisation, the explorer can drill more holes at shorter distances and closer spacings, and have more certainty that drill holes won't be disrupted by unknown ground conditions.
With discoveries made deeper under cover these days, that could deliver major savings and spare the embarrassment of poor grade reconciliation down the line.
"You don't have to avoid doing too many thousand metre drill holes to make an exploration decline, just pay for itself if you like," Forwood said.
"If you get underground you can do much shorter holes like 50 metres or a couple hundred metres deep for long holes.
"You're saving on drilling costs. You've got that big upfront capital, of course, but if you really believe in your deposit, you've got a reason to do that."
The Spartan lesson
Among the most prominent examples of the exploration decline method in action came from Spartan Resources (ASX:SPR), which was established via an $18.3m contract with underground mining experts Barminco.
The decision to sink the Juniper decline was dual train. It was blasted wide enough to become a production decline in the future, short circuiting the company's path back to production at the Dalgaranga gold project in WA.
It also provided access to drill on tight spacings at the emerging Never Never and Pepper discoveries, now comprising 2.3Moz at over 9g/t.
But there was another advantage.
Explorers who strike it big commonly follow what's called the Lassonde Curve, a chart named after well-known mining investor Pierre Lassonde that suggests the fast lift in a company's share price which follows a discovery is followed by a plateau as it moves into feasibility studies, which present risks if results disappoint.
But continuing to drill, Spartan was able to continue catching the upside from growing its resource base and was eventually picked up at a premium in a $2.4bn takeover by Ramelius Resources (ASX:RMS).
"The market still maintained that interest in Spartan because they were still exploring and they still had lots of blue sky," Forwood said.
" Often when you put a resource around something and you move your focus from exploration to development, the blue sky disappears from your share price and then your shares go through that valley of death."
Exploration declines also show investors that by going the extra yards juniors are willing to derisk their future reserve base.
"We always used to think of that approach as the way that the Russians did it," Forwood said.
"The Russians wouldn't classify what we call reserves until they had actually driven drives, multiple drives through an orebody and could touch and feel the actual ore."
Companies taking the plunge
Not every explorer has the goodwill with investors and capacity to fund an ambitious initiative like an exploration decline.
But those that can stand to reap the rewards.
Southern Cross Gold (ASX:SX2), which has dual listings in Australia and Canada, has pledged to spend C$27m on a 1km long decline at its highly touted Sunday Creek gold and antimony project in Victoria, where a long-anticipated maiden resource is due in 2027.
C$53m will be spent on drilling to establish the inferred resource out of a C$143m ($162m) private placement led by Stifel Nicolaus Canada, Aitken Mount Capital partners and co-managed by Jett Capital Advisors.
For SX2, Forwood says the exploration decline will provide a signal to the market for the company's ability to get permitted in a jurisdiction known for its regulatory complexity.
"Once you can get the decline permitted, it is so much easier to then do the drilling. So you don't have to go and licence individual drill pads on surface," Forwood said.
" You're ... almost unconstrained by permitting once you've done that."
Also in Victoria, Catalyst Metals (ASX:CYL) has touted plans to seek approval from the State Government for an "exploration tunnel" at the Four Eagles gold project.
Surface drilling has so far outlined a resource at the JV with Gina Rinehart's Hancock Prospecting of 163,000oz at 7.7g/t.
That includes 70,000oz at an outrageous 26g/t at the Boyd's Dam project. Catalyst, in its deal to sell the Henty gold mine in Tasmania to Kaiser Reef (ASX:KAU), also secured a 12-year option to acquire 50% of KAU's 200,000tpa processing plant.
Forwood says the access to the processing plant capacity means material stockpiled from the decline development could cover some of its costs if it contains economic but sub-resource grade gold.
Meanwhile, over in Arizona in the USA, New World Resources (ASX:NWC) is considering the establishment of the single decline at its Antler deposit to expand its copper dominant resource, with some of the best grades hit in deep drilling.
A DFS is due later this year with the company expecting the high grade project to be fully-permitted by early 2026.
'One of the highest grade holes ever drilled at Antler is the deepest hole drilled, but they're very expensive holes to drill from the surface,' Woolrych told Stockhead in a recent interview.
' One of the reasons we're looking to advance our decline and get that started later this year is we are looking to drill from underground. For every metre we can drill from surface we can drill four from underground.'
Lowell holds a small stake in NWC, with Forwood saying the early development of the decline would assist in getting the company ahead of the curb as it waits for permitting for the full project.
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.