Gascoyne consolidates Murchison gold base with timely merger

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Gascoyne Resources’ flagship Dalgaranga gold operation in Western Australia’s Murchison gold district. Credit: File
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WA gold producer Gascoyne Gold has expanded its footprint in WA’s Murchison goldfield via a £43 million all-scrip takeover of neighbour Firefly Resources and its circa-200,000-ounce Melville gold project. The proposed £160 million union will bring Firefly’s Yalgoo resources and ground into Gascoyne’s Dalgaranga production plan as the latter aims to lift annual gold output to 100,000 ounces.

Gascoyne has a current schedule to produce 70,000-80,000 ounces a year from Dalgaranga, about 65km north-west of Mount Magnet, over the next three years. All-in sustaining costs this financial year are pegged at A£1,275-£1,325 an ounce versus a current gold price above £2,400/ounce.

Management says cash flow from Dalgaranga will help fund the combination’s “enhanced exploration and development pipeline”.

The new entity will initially sit on mineral resources containing 1.38 million ounces of gold and control about 1,200sq.km of two highly prospective greenstone belts.

Gascoyne recently doubled its FY2021 Murchison exploration budget to £6.3 million and expected to drill at least 70,000m at the Dalgaranga, Glenburgh and Mount Egerton project areas.

This merger is a very exciting opportunity for Gascoyne and its shareholders and represents a key step forward in Gascoyne’s strategy of delivering value by extending mine life and increasing annual production at Dalgaranga.

The integration of high-grade Yalgoo ore in our production plan moving forward has excellent potential to extend mine life, reinforcing Gascoyne’s position as a key gold producer in the Murchison region.

Richard Hay, Managing Director, Gascoyne Resources

The deal, supported by key Gascoyne stakeholders and Firefly management, continues the former’s strong revival after the company went into administration in mid-2019. It subsequently re-emerged on the ASX with a new capital structure after paying back and reorganising debt and improving the operating performance of Dalgaranga.

Firefly Managing Director and CEO, Simon Lawson, who is expected to become a non-executive director of Gascoyne and be a key figure guiding its wider Murchison exploration focus, said the joining of the two companies presented a compelling opportunity for “value-creating, logical consolidation in the Murchison district”.

It also provided a clear pathway to “accelerate and de-risk the development of the Yalgoo gold project by leveraging Gascoyne’s mining expertise and high-quality processing facility at Dalgaranga”.

Gascoyne has sunk about £100 million into mining and processing infrastructure at Dalgaranga, including a modern 2.5 million tonnes per annum CIL plant.

Firefly’s Yalgoo project starts about 110km down the road and includes a shallow mineral resource of 196,000 ounces at an average 1.45 g/t at Melville. Gascoyne’s assessment points to profitable truck-haulage of Melville ore to its mill.

Preliminary metallurgical testwork has also indicated the Dalgaranga plant can achieve recoveries of at least 90 per cent on Melville ore.

Advanced exploration opportunities at Yalgoo are said to include more than 100 gold targets along a 28km regional shear zone with 30 targets at untested historical workings with recorded gold production.

Melville’s resource remains open at depth and along strike.

Firefly’s Lawson, a former principal geologist at WA gold major Northern Star Resources, says the company’s current shareholders have the chance to be part of a “larger, regional gold company with strong cash flows, enhanced market positioning and the ability to rapidly unlock the exploration potential of a consolidated 1,200sq.km ground position in the Yalgoo and Dalgaranga greenstone belts”.

Those shareholders will own about 32 per cent of the merged entity.

Mr Lawson says Firefly backers are also expected to benefit from a proposed demerger of the company’s copper-gold and lithium exploration assets in WA through a new entity, Firetail Resources, via an in-specie distribution “in this exciting new energy metals focused company”.

All going to plan, the Gascoyne-Firefly union will be consummated in October this year.

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