KAU now fully exposed to gold price, gold at all time highs

Our gold producing Investment Kaiser Reef (ASX: KAU) has just made the remaining gold call option delivery, so is now fully exposed to the gold price.

KAU has two hubs where it owns assets:

1. In Tasmania where KAU owns the Henty gold mine - where KAU is currently producing gold (6,946k ounces in the last quarter) and is looking to increase that production rate to 35k ounces per annum by FY Q4 27 (April 2027).
2. In Victoria where KAU owns a 200ktpa operational processing plant and the old Maldon gold mine - The Maldon asset is ~4km away from that processing plant which is running well below capacity and KAU has previously put out a mine restart study for that project.

(source)

Combined, the two assets generated ~$13.7M in positive cash flow for KAU in the last quarter.

As a part of acquiring the Henty Gold Mine, KAU took on “gold call options” from Auramet.

This was required as part of the funding package to help KAU to minimise dilution when it acquired the mine back in March last year, taking over operations just before mid year.

A gold call option gave Auramet upside to the gold price, where it was able to purchase a total of 6,000 ounces of gold from KAU at a price of A$5,300/oz.

So while KAU may have been selling these ounces below market price, the long term gain is less dilution to shareholders over the long term as it resulted in less shares being issued to fund the acquisition.

Today KAU confirmed that the last of the gold call options has been cleared, with the final 1000oz delivered prior to the end of February, as was forecast in prior announcements (source).

So now KAU is fully exposed to the gold price with no hedges in place, exactly what you want in an environment of rising gold prices - to be selling all ounces produced at the market rates.

Gold has opened up higher on the back of the Iran conflict from the weekend, currently sitting at over A$7,600/oz, nearing the very brief record high set in late January of ~A$7,900/oz.

(source)

So with KAU having been delivering 1,000 ounces in prior months and receiving A$5,300 for them, KAU would now be expecting an extra $6.9M in revenue from those 3,000 ounces per quarter receiving the full current price. (this assumes the gold price stays as above, it could move in either direction).

KAU confirmed that in the prior quarter (when prices were lower), that these gold call options impacted revenue by $3.3M.

KAU has been systematically paying down its liabilities from the Henty acquisition, with just 832 ounces remaining from a gold loan which will be paid off in 8 months time at 104oz per month.

Last quarter KAU produced 6,946 ounces, so overall this remaining gold loan would be around only 1.5 weeks of the prior production rate.

As a reminder, last quarter KAU added ~$13.7M in positive cash flow.

So assuming it can maintain production and costs (no guarantee), this figure could increase due to the gold price movement this quarter and final call option repayment being made last month, giving 1 month hedge free.

What we want to see next from KAU

Cost optimisation and exploration at Tasmanian project (Henty) 🔄

The main thing we want to see at Henty is for KAU to increase production rates and optimise costs.

Recently the company confirmed that upgrades to the plant are mostly in place with trials having been done and further refinement on the processing side in the works.

(source)

Today’s update has confirmed that the plan is to get Henty to 35koz/year from late FY 2027 (around 12 months from now), with a gradual increase toward that target until then.

(source)

Exploration program at Maldon 🔄

With KAU’s drilling at Maldon complete and results released, we want to see follow up drilling on the results announced here recently.

KAU has today confirmed that works to re-access and rehabilitate the underground decline are now in progress. So we are looking forward to seeing KAU drill new areas of Maldon from underground as these works also include additional drill position development. (source)

Also today KAU confirmed that the Maldon Strategic Plan will be released shortly. (source)

Update on potential for waste dump processing 🔄

KAU processed ~3,234t of ore at an average grade of 1.61g/t gold with 90.7% recoveries in January.

All of that came from stockpiled ore at the Union-Hill mine.

We want to see KAU increase those processing rates by blending in the waste dumps from the project (where the resource defined from recent waste dump drilling sits).

IF KAU can get the waste dumps processed and capacity up at the plant, we think it could improve the cashflow of the company’s Victorian operations significantly - a good result for us would be to see the Victorian operations being cashflow breakeven.