Barry FitzGerald: Kairos picks right time to ramp up Pilbara gold exploration
Garimpeiro's memory is a bit fuzzy on the exact date he had a coffee with Simon Lill in Melbourne's Bank Place.
But it was likely early 2019 and Garimpeiro remembers being a bit grumpy that the catch-up with the then executive chairman of De Grey Mining wasn't scheduled for the PM rather than the AM so it could have taken place in the Mitre Tavern just down the alley.
Thanks to the cleat head though, Garimpeiro remembers De Grey was trading at less than 10c share for a market cap of about $40 million and that Lill was enthusiastic about growing the company's gold resource at its Mallina gold project in the Pilbara.
His enthusiasm proved well placed. Late in 2019, De Grey made the intrusion-related Hemi discovery which has grown to more than 11 million ounces, making Mallina 13.5Moz all up after the pre-Hemi shear-hosted gold resource is included.
Northern Star Resources (ASX:NST) has just made De Grey and its Pilbara gold riches its own with an agreed $5 billion scrip takeover bid which ended up being a $6 billion takeout due to rising gold prices pushing Northern Star scrip higher.
Lill was there all the way through De Grey's journey from an overlooked junior gold explorer in the then unfashionable Pilbara – for gold at any rate – through to the last day when De Grey shareholders voted through the Northern Star takeover in April.
Any way it is sliced, the De Grey journey over the last six years has been one of the biggest single valuation creation exercises in the ASX gold space. It wasn't a 10-bagger. It was a 150-bagger, if you don't mind.
Lill is the first to say it was a team effort. And it was.
Coming from a stockbroking and capital markets background, his main contribution was bringing in the small licks of capital to keep the lights on during the hungry years, and then the big licks needed to advance the Hemi discovery to the point where Northern Star had to buy it.
Back in black
Garimpeiro would be content after an achievement like Lill's at De Grey to hold court at the front bar at the Mitre and not do much else. But that's not for Lill. He is back as a chairman guiding another Pilbara gold stock – Kairos Minerals (ASX:KAI).
For a couple of years, when the Pilbara conglomerate gold story was running hot, and another couple of years when lithium was the thing, Kairos took its eye off its Mt York gold project. Those distractions left the stock with few followers.
But starting in May 2022 when veteran geologist Peter Turner became manager director, Mt York is now getting the attention it deserves. And now with Lill as non-executive chairman, Kairos is likely on a re-rating pathway.
Mt York deserves attention all right. It stands as a 1.4 million ounce resource in a single pit shell (43Mt grading 1g/t). The mineralisation is of the banded iron formation (BIF) style which makes it different to Hemi, 55km to the north-west.
But as experienced miners will tell you, the style doesn't matter as long as there is plenty of gold to be had. Geological comparisons for Mt York include Karlawinda in the Pilbara and Mt Gibson in the Murchison, the two gold deposits that underpin Capricorn Metals (ASX:CMM) $4 billion market cap.
Major exploration program
Mt York is better grade than both of those but it has a long way to go to catch them in terms of resource ounces.
The biggest exploration program ever undertaken by Kairos is now underway, with a likely first target being to grow Mt York to something more than 2Moz. Helping the cause is pending access for Kairos to a 1500m extension of the mineralisation as it trends into its neighbour's ground – Pilbara Minerals, and its Pilgangoora lithium operation.
An earlier deal between Kairos and Pilbara involved Pilbara agreeing to a $20 million payment for some non-core Kairos tenements. The first $10m instalment is helping fund the record exploration effort at Mt York.
The exploration effort will likely lead to an increased mineral resource estimate update later this year – a sure fire re-rating event.
Kairos could certainly do with a re-rating event. At its mid-week price of 2.8c a share it is has a market cap of $73.6 million. Based on the existing 1.4Moz resource estimate, it has one of the lowest enterprise value-to-resource ounce metrics in its ASX peer group.
That is despite a scoping study in November last year outlining a $276 million project producing 115,000oz annually at an all-in sustaining cost of $2205/oz. Using a conservative $3500/oz gold price, the pre-tax net present value (NPV) was put at $410 million and capital payback was put at 2.7 years.
Gold is now $5100/oz or thereabouts. Plug that into the financial model and Garimpeiro estimates a NPV of around $1 billion and a payback period well short of two years. That makes Kairos' current market look to be on the mean side of things.
That's particularly so when Mt York gets juiced up by the additional ounces expected to come from the big exploration push now underway.
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