KAU ready for toll treating agreement at gold processing plant
Our gold Investment Kaiser Reef (ASX: KAU) just announced that its 100% owned processing plant is ready to start toll treating third party ore in Victoria.
KAU’s Maldon processing plant currently has the capacity to process ~250,000tpa of ore.
At the moment, the plant is operating at ~20% of that capacity.
The spare capacity is because KAU is about to start developing never before mined parts of its high grade A1 gold mine also in Victoria.
(once the development work is done and A1 is being mined, we expect KAU to feed its own ore through its plant).
While all of that happens, the processing plant can be used to process third party ore.
Today, KAU announced its first toll-treatment deal to process third party ore at its plant.
What is a toll treating deal?
At a very high level - it's when a miner provides ore to the owner of a processing plant, who then processes it on their behalf based on pre-agreed deal terms.
Sometimes, the deal terms are for straight cash payments sometimes they are for a share of the gold that is produced.
The deal terms can change, but these type of deals are good for miners with no access to OR funds to build a processing plant & for a company that owns a processing plant with spare processing capacity (like KAU).
We noticed in today’s announcement that KAU is currently “in discussions with other potential toll treatment parties” as it looks to fill up the spare capacity at its mill.
Our view is that processing plants with spare capacity are most valuable when the underlying commodities are trading at record highs.
(just like gold prices are today).
A lot of projects that may not have been economically viable in the past can now start to look interesting BUT the owners of the projects need to get the ore mined and processed as quickly as possible to lock in current prices.
That means the processing plant owner has more demand from operators looking for a plant then it would have when prices are low.
Anyone who follows the junior gold space, over the last 12 months we have seen a bunch of smaller companies with existing gold deposits start to “fast-track mining approvals” and “start discussions with potential toll-treatment partners”.
We are hoping KAU is able to capitalise on this environment with multiple new deals over the coming months.
KAU’s gold processing plant was one of the main reasons we first Invested in KAU.
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.
Source: “Why we Invested in KAU” - KAU Investment Memo 21 October 2024
To see all 11 reasons why we Invested in KAU check out our most recent note here: Our New Investment is Kaiser Reef (ASX: KAU)
What do we want to see KAU deliver?
As part of our KAU Investment Memo we set four key objectives that we wanted to see the company achieve.
Today’s news related to Objective #4.
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
🔲 Drilling commences
🔲 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
🔲 Decline construction progresses
🔲 Mining of virgin ground commence
🔲 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
🔲 Drilling commences
🔲 Drilling results
🔲 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
🔄 Incrementally increase tailings capacity by 200K tonnes and then 1.8M tonnes.
🔲 Organically increase production
🔄 Toll treating deals
🔲 M&A of new ounces
Today’s deal was the first (of what we hope is many new) deals to toll-treat third part ore at KAU’s processing plant.
We are hoping KAU can sign a few more of these deals.
