KAU produces 8,115 ounces in 90 days as gold hits new all time highs… plus blue sky gold drilling results any day now.

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 3,942,000 KAU Shares and the Company’s staff own 71,000 KAU Shares at the time of publishing this article. The Company has been engaged by KAU to share our commentary on the progress of our Investment in KAU over time. This information is general in nature about a speculative investment and does not constitute personal advice. It does not consider your objectives, financial situation, or needs.

Gold just ripped to above US$3,960/oz for the first time ever.

In Aussie dollar terms that is A$5,850/oz.

Great timing for any company producing and selling gold right now.

The only company in our Portfolio producing gold right now is Kaiser Reef (ASX:KAU).

KAU owns 100% of the Henty mine in Tasmania which is currently pouring gold bars regularly.

In the most recent quarter at Henty, KAU produced 8,115 ounces of gold.

(Source)

Gold traded at a minimum of US$3,250 per ounce for the quarter, but spent most of the quarter closer to today’s highs of US$3,960...

Using the minimum gold price for the quarter, that would put the MINIMUM production revenue at US$26M (~A$40M) for $172M capped KAU...

We will now have to sit and wait til the end of October to see just how big KAU’s revenue number will be...

Fingers crossed, KAU timed its sales to perfection and captured the higher prices we saw later in the quarter - whatever happened, we will find out before the end of the month when KAU’s quarterly report is released.

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

BREAKING: Just before we hit send on this, KAU announced that Brad Valiukas has been appointed KAU’s new Managing Director - whose previous role at KAU was Director of Operations.

Brad held senior roles at Northern Star Resources between 2015 and 2019 so he knows his way around building profitable gold operations.

Brad was there at Northern Star when it picked up the Jundee asset off Barrick.

Jundee was prised out of a bigger company which couldn’t properly realise the value of the asset.

When Northern Star picked it up, it had 2-3 years of mine life left...

To this day (10 years later) that asset still produces over 250k ounces per annum for Northern Star...

Hopefully he can do the same with KAU’s Henty mine...

So what is KAU going to do with all its cash?

How about using some of it to drill for a new high grade discovery at KAU’s Maldon project in Victoria?

That’s exactly what KAU is doing.

KAU’s Maldon project historically produced ~1.74M ounces of gold at average grades of ~28g/t.

KAU is drill testing directly in and around the EagleHawk Reef which was responsible for 491,000 ounces of that 1.74M historic production...

Exploration drilling began last month to find more ounces - and first results are due THIS MONTH.

There’s a bit of attention on Victorian ASX listed gold stocks at the moment, so the next few weeks should be interesting here.

IF they make a discovery here, ore can be processed into gold bars at KAU’s operating processing plant next door.

(This is from our site visit to Maldon where we saw a gold bar get poured in the flesh)

And anything that surprises to the upside, or anything near the average historical production grades of 28g/t, should set the market alight in the current high gold price environment.

We recently saw another Victorian explorer re-rate 10x higher off some strong hits - so there is a precedent set for it in the market too...

(no guarantees with the market of course, and the past performance is not an indicator of future performance.)

So KAU has got lucky with the gold price for its producing asset in Henty.

(and some nice strategic moves a few months back to acquire Henty is also a big part of the KAU story...)

Now we wait to see if KAU can get lucky again with its exploration drilling in Maldon, Victoria.

Over the next couple of weeks we will be watching out for:

1. KAU’s quarterly report and with financials (due by 30 October) to see what last quarter’s production means for KAU in terms of cashflows from their Tasmanian Henty mine, AND;
2. Exploration drill results from KAU’s Maldon project in Victoria - where assays are due ‘this month’.

Yesterday, KAU put out a strong production update on its Tasmanian project.

This was KAU’s first full quarter of production as the 100% owner of the mine:

• KAU produced 8,115 ounces of gold - annualised that would be ~32,460 ounces which is significantly higher than the targeted 25,000 ounces (or 6,250 ounces each quarter) that KAU had forecast for the Henty mine when they bought the project back in May. One quarter down, three to go... we just need this production pace to continue.
• At an average head grade of 4.12g/t gold - A slight improvement on KAU’s last quarter where head grades were 4.05g/t gold.
• With recovery rates at 89.1% - compared to 87.1% last quarter - again another small improvement in terms of performance.

This is the highest quarterly gold production at the Henty Mine in over 5 years - the previous highest was over 6,000 ounces.

When KAU first announced the acquisition of the Henty mine back in March, we said that all we needed to see from KAU was steady production numbers and a gold price that stayed at its all time highs...

(Source - 11th April)

The gold price when KAU announced it would acquire Henty was ~US$3,000 per ounce.

We definitely didn't think the gold price would move this much higher this quickly...

Gold is now up ~US$900 per ounce (~30%) since then.

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

So KAU’s balance sheet is getting a free kick from the gold price.

AND KAU is currently putting the finishing touches on upgrades to its plant to increase production too.

How much can KAU increase its production rates?

In yesterday’s announcement KAU said that “upgrades on the Henty processing plant” had mostly been completed now.

And that “increased throughput trials” would start shortly...

(Source)

KAU’s target from the day it acquired Henty was to try and push processing up to >300,000 tonnes per annum.

300,000 tonnes per annum at the head grades achieved last quarter would mean KAU could push its plant to produce ~10,800 ounces every 90 days...

Not to mention all the other efficiencies KAU is working on - like optimised underground mining rates and increasing the size of the decline to allow for bigger trucks.

IF KAU can hit those targets that would be an additional ~2,700 ounces in potential production.

Which at today’s spot prices would be another US$10.5M (A$15.9M) in revenue every quarter...

(of course the gold price can go up or down - it doesn't sit still)

Here is KAU’s Henty growth strategy from a recent investor presentation:

(Source)

KAU is also exploration drilling at its Victorian asset

At the moment, the market is likely valuing KAU based on the production numbers coming out of its Henty mine in Tasmania alone.

(which is fair enough given the current gold price and KAU’s production volumes)

Beyond the production numbers we are also looking forward to seeing what comes from the exploration drilling on KAU’s Maldon project in Victoria.

Assays are due this month.

KAU started drilling Maldon a few weeks ago following up an old drillhole that previously returned a 7.6m intercept with gold grades averaging 4.88g/t.

Maldon historically produced ~1.74M ounce of gold at average grades of ~28g/t.

The “reef” that KAU is targeting with this round of exploration drilling was responsible for ~491,000 ounces of that production...

Here is a photo of the old timers mining that EagleHawk Reef:

(We dug this photo up in the State Library Victoria photo archives, you won't find it anywhere else on the internet)

We have been to the Maldon project - here our photo looking into the pit where KAU will be drilling down from:

We like that KAU is doing exploration drilling at its Maldon project for three reasons:

1. Maldon sits ~4.1km away from KAU’s operating Victorian processing facility which is currently operating well below its capacity - meaning any new discovery could be put into production very close by (versus trying to build something from scratch)...
   
2. The EagleHawk reef, which KAU is targeting now, is close to the existing decline (the tunnel that goes underground at Maldon) - meaning any extensions to the reef should also be easier to access.
   
3. And finally... the market is very interested in Victorian gold exploration, with another ASX explorer, Falcon Metals re-rating more than 10x off very narrow, high grade hits from ~544m to ~600m depths (Source, Source). (the past performance is not an indicator of future performance)

We think that any repeat of the previous 7.6m intercept with gold grades averaging 4.88g/t at KAU’s project could bring with it some increased market attention to KAU.

Especially with how close KAU’s project is to its existing operating mill...

As we noted above, being so close to a processing plant means any discovery can be commercialised a lot easier/quicker than something that is isolated far from any processing infrastructure.

Falcon, for example, has no mine infrastructure or operating mill and is very early into the delineation phase of its new discovery.

And just for some context here are the results that triggered that big run in Falcon’s share price:

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

In Falcon, we think the market has set a precedent for how KAU’s valuation could re-rate if there is any exploration success on its Victorian ground.

Why exploration success near their gold processing plant could be big for KAU

A great example of a company-making discovery, next door to existing processing infrastructure is ASX listed Spartan Resources (formerly Gascoyne Resources).

Spartan’s project in WA was also placed into care and maintenance (and even went into administration) - similar to KAU’s Maldon project which is also in care and maintenance (not admin)...

In 2022 Spartan Resources drilled ~50m away from its existing JORC resource (which had been producing gold for years) and made a seriously high grade discovery...

That discovery took the Spartan share price from ~10c to a share price north of $2 per share...

Past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

Spartan Resources was purchased by Ramelius Resources for $2.4B within 18 months of the gold discovery.

A key reason for the acquisition was the “processing capacity and production profile” of Spartan:

(Source)

Ultimately, we want to see KAU increase production and use cashflows from production to fund an exploration win OR more M&A...

All of this forms the basis for our KAU Big Bet which is as follows:

Our KAU Big Bet:

“KAU can grow production at both of its projects in Tasmania and Victoria to >50k ounces per annum. Using that cashflow KAU can fund exploration OR M&A that leads to a re-rate in the company’s market cap to above $1BN”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is no guarantee that our Big Bet will ever come true. There is a lot of work to be done, many risks involved, including development risk, country risk and regulatory risk - just some of which we list in our KAU Investment Memo.

Success will require a significant amount of luck and good management. Past performance is not an indicator of future performance.

What’s next for KAU?

Cost optimisation and exploration at Tasmanian project (Henty) 🔄

Yesterday the company confirmed that upgrades to the plant are mostly in place with trials to begin shortly on increasing throughput.

(Source)

Higher production throughput, improved recoveries, and lower costs per unit of gold produced would result in stronger overall economic performance.

Reserves upgrade at the Tasmanian project (Henty) 🔄

Yesterday KAU also said that the Henty resources and reserves upgrade is expected to be released this month.

Reserves/mine life at the time of Henty being acquired was ~5 years.

At the time KAU had said ‘There is significant scope to extend mine life based on the current Mineral Resource of 4.1Mt @ 3.4g/t Au for 449koz along with the considerable opportunities for near-mine exploration and development success.’ (Source)

We think the market will like any increase to the project’s mine life beyond that initial 5 years because it will allow the market to assume production continues for much longer.

Exploration program at Maldon in Victoria 🔄

Drilling started back at the start of September so we should be getting closer to some newsflow from this pretty soon.

KAU expects drill results to be announced this month...

What are the risks?

The three key risks to our KAU Investment Thesis in the short term are - “Production Risk”, “Commodity Price Risk” and “Exploration Risk”.

Production risk because KAU now has producing assets, which carry significant costs.

If production rates fall materially, it could mean significant negative cashflows to KAU which would hurt the company’s share price.

We also note, KAU has $7.5M in drawn debt and a series of put options outstanding (source) which means KAU has short term liabilities it needs to meet.

Any production issues could make it difficult to service that debt and deliver gold into those options which could hurt KAU’s share price.

Production Risk

The ability of the KAU to achieve production targets or meet operating and capital expenditure estimates on a timely basis cannot be assured. As a producer, KAU is subject to risks such as but not limited to, labour costs and availability, energy prices as well as KAU’s internal ability to forecast costs like these and budget effectively.

Source: “What could go wrong” - KAU Investment Memo 26 May 2025

Commodity prices (in this case, gold) are also a risk to our KAU Investment.

KAU is a completely unhedged gold producer; any fall in the gold price would impact revenues directly.

If gold prices fell enough, we would expect it to impact the KAU share price negatively.

Commodity Price Risk

KAU is an unhedged gold producer, meaning all of its production is sold at, or close to, the spot price for gold at any given time. Any material fall in the gold price could hurt KAU’s share price significantly.

Source: “What could go wrong” - KAU Investment Memo 26 May 2025

KAU also has an element of exploration risk because of the drill programs being run across both its Tasmanian project and the newly started drill program at Maldon.

Poor exploration results from either asset could negatively impact the market’s perception of the exploration upside on KAU’s projects.

Exploration risk

There is no guarantee that KAU’s drill programs are successful, and KAU may fail to find economic gold deposits.

Source: “What could go wrong” - KAU Investment Memo 26 May 2025

For the full set of risks we have identified and accepted in making our Investment in KAU, see our KAU Investment Memo below.

Other Risks

Like any stock market investment, investing in KAU carries a range of risks which may affect the value of the company, some of which cannot be predicted (this is the nature of risks).

Here we aim to identify a few more risks.

KAU is a gold producer, and while production at the Henty mine has been improving, there is always the risk of operational setbacks. Lower grades, reduced recoveries, or unplanned downtime could materially impact cash flow and profitability.

The company is also working to grow production further through plant upgrades and exploration at its Tasmanian assets. Any delays, cost overruns, or technical challenges could affect timelines and market confidence.

KAU remains highly exposed to fluctuations in the gold price. As a mostly unhedged producer, any sustained decline in gold prices would directly reduce revenue and margins.

Although KAU is generating cash from production, it may still need to raise capital to fund future growth or exploration. Any such capital raisings could dilute existing shareholders.

Regulatory and permitting risks also exist, particularly in Victoria and Tasmania where mining and environmental approvals can be subject to extended timelines and scrutiny.

Finally, while KAU’s market cap has grown alongside its progress, investor sentiment toward small-cap gold producers can remain volatile. Broader market weakness or sector rotation could weigh on KAU’s valuation regardless of operational performance.

Investors should carefully consider these risks and seek professional advice tailored to their personal circumstances before investing.

Our KAU Investment Memo

You can read our KAU Investment Memo in the link below. We use this memo to track the progress of all our Investments over time.

Our KAU Investment Memo covers:

• What does KAU do?
• The macro theme for KAU
• Our KAU Big Bet
• What we want to see KAU achieve
• Why we are Invested in KAU
• The key risks to our Investment Thesis
• Our Investment Plan