Kaiser Reef Ltd (ASX:KAU)

Investment Memo:

Kaiser Reef Ltd (ASX:KAU)

- LIVE

Opened: 26-May-2025

Shares Held at Open: 4,796,210

What does KAU do?

Kaiser Reef (ASX:KAU) is a high-grade gold producer and explorer with projects in Tasmania and Victoria.

KAU’s projects combined produce >25k ounces of gold per annum.

What is the macro theme?

Gold is a precious metal that is often used as a hedge against inflation, which remains persistently high, and the gold price is trading at all-time highs at the time of this memo.

Our Big Bet for KAU

“KAU re-rates to a market cap greater than $300M by increasing gold production at its A1 Mine and/or making new discoveries at either of its two gold projects (A1 or Maldon)”

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 a lot of work to be done, many risks involved - just some of which we list in our KAU Investment Memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true

Why did we invest in KAU?

The gold price is surging

Gold is trading at all time highs against just about every currency in the world. At the time of writing this, gold is trading at ~A$5,170 per ounce, which is over 100% above its 2021 peak...

Two operating assets producing >30k ounces of gold per annum

KAU is now the 100% owner of projects in Tasmania and Victoria that combined produce more than 30,000 ounces of gold per annum. In Tasmania KAU is producing ~25k ounces per annum and in Victoria ~5k ounces per annum.

KAU is an unhedged gold producer

Some gold producers commit to sell future gold production at a fixed gold price - which means they do not benefit from rising gold prices (or suffer from falling prices). KAU is NOT hedged, meaning the more the gold price goes up the better off KAU will be. Based on today’s gold price KAU could generate >A$150M in revenues...

Projects have combined infrastructure worth >$100M

At its Tasmanian project there is over $100M+ of processing and mine infrastructure. In Victoria, KAU owns one of few fully permitted processing plants in the state. Building a new plant from scratch in either location would take years of permitting and upwards of KAU’s current market cap.

KAU’s processing infrastructure in Victoria is strategically important

A new processing plant in Victoria would be extremely hard to get permitted and built from scratch. We think a big part of the reason KAU’s Henty deal went through is because of the value $1.5BN Catalyst Metals saw in the Victorian plant - Catalyst is now KAU’s biggest shareholder owning 19.99% of the company.

KAU’s plan is to increase production to >50k ounces per annum

The current plan for KAU is to increase processing capacity in Tasmania by ~30% which could add upwards of 10,000 ounces of production per annum. Ultimately the goal is to increase production across both its Tasmanian and Victoria assets to that ~50k ounces per annum run rate.

Exploration upside right next to existing infrastructure

We like that KAU’s projects still have a lot of untapped exploration upside. The major benefit is that any big discovery can be commercialised using the company’s existing processing infrastructure.

Previous investors/owners have done all the heavy lifting for KAU

We think this applies to all of KAU’s assets. In Tasmania the heavy lifting was done by Catalyst Metals over the last few years. In Victoria, the heavy lifting was done by the previous owners who have been mining remnant ore for 40+ years, KAU is the first company to be mining fresh, virgin ground at its A1 mine in Victoria.

Acquiring big gold assets has worked for other ASX companies

Northern Star was capped at $7M when it made its first big acquisition for $40M. 25 years later and several other acquisitions later Northern Star is capped at $20BN. Growing quickly through acquisitions also means KAU’s market cap can get to a size where institutional investors are able to invest in the company.

KAU’s Director of Operations - Brad Valiukas - has experience maximising value from assets like these and is now working full time on Henty and A1

Brad was Manager for Technical Services at Northern Star during 2015-2019. His role was spread across the entire Northern Star portfolio and he helped set up the foundations for assets like Jundee to be the cornerstone of the $20BN producers project portfolio.

What do we expect KAU to deliver?

Objective #1: Increase production at the Henty mine in Tasmania

We want to see KAU increase its mining rates as well as increase the capacity of its processing plant to ~400ktpa.

Milestones

not done Increased development rates

not done Processing plant improvements

not done Production increases above 25k ounces (annualised)

not done Production increases above 35k ounces (annualised)

Objective #2: Increase production from the A1 mine in Victoria

KAU is the first company to be mining fresh, never before touched ground at A1 in over 40 years. We are hoping that means production rates increase well above the rates achieved while mining remnant (leftover) ore.

Milestones

not done Increased development in never before mined areas

not done Quarterly production above 2k ounces

not done Quarterly production above 3k ounces

not done Quarterly production above 4k ounces

Objective #3: Exploration at the Maldon project in Victoria

We want to see KAU drill out the Maldon project and (fingers crossed) make new discoveries close to its existing 250ktpa processing plant.

Milestones

not done Drilling starts

not done Drilling results

Objective #4: Exploration at the Henty mine in Tasmania

We want to see KAU use its cashflow from the Henty mine to increase the projects resource/reserves and extend its mine life. The ideal scenario would be unexpected NEW high grade discoveries close to the company’s processing plant.

Milestones

not done Drilling starts

not done Drilling results

What could go wrong?

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.

KAU early quarterly update: Record gold production… again. Now at a 46 day streak. [08-Jul-2025]
KAU produces 8,115 ounces in 90 days as gold hits new all time highs… plus blue sky gold drilling results any day now. [07-Oct-2025]

Debt Risk

KAU took out a $10M loan to finance the acquisition of the Henty Mine. Having debt means KAU now has an element of “default risk”.

There is always a chance that KAU isn't able to operate its assets profitably enough to repay its debt. This scenario would re-rate KAU’s share price lower significantly.

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.

Exploration risk

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

Market risk

There is always the possibility that broader market sentiment gets worse and shares as a whole trade lower, taking KAU’s share price with it. Alternatively, there could be further sector specific pain ahead where junior explorers suffer a lot more than the broader market.

Development/delay risk

Both of KAU’s operating assets are underground mines where decline development work usually determines production rates. Any material delays to decline developments could mean lower production which we think would be a negative to KAU’s current market cap.

What is our investment plan?

We are Invested in KAU to see it grow production across its two projects in Tasmania and Victoria.

Our plan is to hold the majority of our position in KAU for 3 to 5 years which we hope is enough time to see KAU materially increase gold production (see “our long term bet” above).

After 12 months we will apply our standard de-risking strategy.

We may look to sell up to 20% of our holding if the company delivers on one or more of our Investment Memo objectives and/or the share price materially re-rates.

Any sell downs will be in accordance with our trading and hold policy disclosure.

Disclosure: Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 4,796,210 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.

Investment Memo:

Kaiser Reef Ltd (ASX:KAU)

- LIVE

Opened: 21-Oct-2024

Shares Held at Open: 4,665,000

What does KAU do?

Kaiser Reef (ASX: KAU) is a high-grade gold producer and explorer located in Victoria, Australia.

What is the macro theme?

Gold is a precious metal that is often used as a hedge against inflation, which remains persistently high, and the gold price is trading at all-time highs at the time of this memo.

Our Big Bet for KAU

“KAU re-rates to a market cap greater than $300M by increasing gold production at its A1 Mine and/or making new discoveries at either of its two gold projects (A1 or Maldon)”

Why did we invest in KAU?

The gold price is surging

Gold is up almost 35% against the USD in 2024 making it one of the best performing commodities this year AND it is trading at all time highs against just about every currency in the world.

At the time of writing this, gold is at AUD ~$4,050 per ounce (US ~$2,700), up nearly 100% from 2021 lows (we track the gold price here).

KAU 100% owns the prolific, historical A1 gold mine in Victoria

Discovered in 1861, this mine has produced over 600,000 ounces - that’s ~$2.4 Billion worth of gold at today’s gold price.

The average grade was 25g/t gold which is extremely high grade (considering most mines today operate at ~1-2g/t of gold).

KAU 100% owns an operating gold processing plant

It's a 250,000 tonne per annum capacity plant within trucking distance of KAU’s operating A1 mine AND the Bendigo goldfields.

The plant means KAU is able to produce and sell gold to the market straight away.

It also means KAU holds a “hard to replace” bit of infrastructure that is valuable to pre-production gold companies nearby wanting to turn their projects into gold (and cash).

KAU recently spent ~$5M on plant upgrades which should improve gold recoveries.

KAU is already producing and selling gold

KAU is already producing and selling gold (and has been for the last few years) by mining the “remnant ore” in the A1 mine that was left over by old time miners who extracted the “easy to get to” high grade ore.

KAU is making around $23-30M revenue per year for the last two years, flirting with break even. A rising gold price means rising revenue for KAU by just doing what they are already doing.

High grade gold exploration upside

Drilling about to start at never before reached depths at the A1 mine.

KAU has already spent ~$23.5M in development and upgrade capital to reach, explore and start mining at these virgin, new depths that the old time miners were not able to access.

New higher grade ore discoveries means higher margins when processing.

KAU also 100% owns the Maldon Mine

The Maldon mine started operating in 1854, and has historically produced 2.1Moz ($8.5 Billion of gold at today’s gold price). The Maldon Mine contained Australia's highest grade gold mine (Nuggety Reef) which produced 301k ounces of gold at whopping grades of 187g/t gold. This project has been on care and maintenance since 2018 but we think any exploration success could bring the project back to life.

Processing plant only operating at ~20% capacity

KAU’s plant was originally built in the 1980s to bulk process lower grade ore from a different mine. This means that in the event of a new high grade discovery at the A1 mine and/or restart of the Maldon Mine, KAU can ramp up production immediately. With the extra capacity KAU could even “toll treat” ore from other nearby gold companies to make some extra revenue.

Visited all sites, spent time with management

We had been looking at KAU for over a year now. We visited the KAU’s projects in March and again in October, and spent time with management, board members and the plant and mine operations teams, and were impressed.

Unhedged gold producer

Some gold producers commit to sell future gold production at a fixed gold price - which means they do not benefit from rising gold prices (or suffer from falling prices).

KAU is NOT hedged, meaning the more the gold price goes up the better off KAU will be.

KAU has a $38M market cap which we think is well below the replacement cost of its assets.

We think KAU’s processing plant and its two gold projects (the operating A1 Mine & the Maldon Mine) are worth a lot more than $38M.

Our view is that just the processing plant on its own would cost more than KAU’s current market cap to replace.

Previous investors/owners have done all the heavy lifting for KAU

KAU’s assets have had years of work and tens of millions of dollars spent getting them to where they are today. KAU is now in a position to benefit from all that sunk capital.

What do we expect KAU to deliver?

Objective #1: Make new high grade discoveries at the A1 Mine

We want to see KAU drill out the never tested sections of the A1 mine and make high new grade discoveries

Milestones

complete Drilling commences

in-progress Drilling results

Objective #2: Increase production from A1 Mine

We want to see KAU mine out the never before touched sections of the A1 gold mine.

Milestones

in-progress Decline construction progresses

in-progress Mining of virgin ground commence

not done Increased average gold grade processed

Objective #3: Make new discoveries at the Maldon project

We want to see KAU make new discoveries and add to its JORC resource at Maldon, which currently sits at 1.2Mt @4.4g/t gold for ~186K ounces of gold. KAU has a current exploration target of ~165K and 345K ounces of gold.

Milestones

not done Drilling commences

not done Drilling results

not done Resources justify bringing the project back online

Objective #4: Increase capacity utilisation at its processing plant

KAU’s processing plant is currently operating at 20-30% capacity, we want to see the company increase this either from its own projects or through toll treating deals on other assets.

Milestones

not done Incrementally increase tailings capacity by 200K tonnes and then 1.8M tonnes.

not done Organically increase production

not done Toll treating deals

not done M&A of new ounces

What could go wrong?

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.

Commodity Price Risk

The performance of commodity stocks are often closely linked to the value of the underlying commodities they are seeking to extract. Should the gold price fall, this could hurt the KAU share price.

Exploration risk

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

Funding risk/dilution risk

As a small cap, KAU is reliant on capital markets to advance its projects. If something negative happens at a macro or company level, KAU could struggle to access capital on favourable terms. These capital raises may take place at a discount, and result in the issuance of new shares which incur dilution to existing shareholders.

Market risk

Development/delay risk

Should any or all of the above risks materialise, KAU could wind up stuck in “development purgatory” where newsflow dries up and the project remains stagnant for a prolonged period of time, hurting the share price. Additionally, if delays occur in terms of material newsflow, the market could turn on KAU.

KAU: Gold drilling commenced at never before mined depths of one of Australia’s highest grade historical gold mines. [12-Dec-2024]
KAU: drill hits up to 65g/t gold. Gold in Aussie dollars at record levels. KAU can quickly mine and sell the gold. [15-Jan-2025]
KAU: Now comes the good part… [30-Jan-2025]
KAU - mining the Nova zone [17-Feb-2025]
$83M KAU to become a 30,000 oz per year gold producer. Gold at all time highs… [24-Mar-2025]
KAU’s new Henty gold mine acquisition produces 6,064 ounces over 3 months. KAU takes ownership in 18 days…? [29-Apr-2025]

What is our investment plan?

We are Invested in KAU to see it expand its production and bring the A1 Gold Mine back into production.

Our plan is to hold the majority of our position in KAU for 3 to 5 years which we hope is enough time to see KAU materially increase gold production (see “our long term bet” above).

After 12 months we will apply our standard de-risking strategy.

We may look to sell up to 20% of our holding if the company delivers on one or more of our Investment Memo objectives and/or the share price materially re-rates.

Any sell downs will be in accordance with our trading and hold policy disclosure.

Disclosure: Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 4,665,000 KAU shares and the Company’s staff own 35,000 KAU shares at the time of publishing this Investment Memo. The Company has been engaged by KAU to share our commentary on the progress of our Investment in KAU over time.