Goldstone Resources (LON: GRL) shares are showing the benefits of following a very old mining technique – go look for gold where people have already found it. This is not a perfect technique but it does often enough work.
The underlying point is that mining technology does march on. We get better at doing all sorts of things, day by day, and extracting minerals is no different. So, there are mines out there which are mined out using the old techniques. But which could be – could be – brought back into production by applying newer technologies. In exactly the manner what is considered mineable ore for gold has gone from Au content of 10 grammes per tonne to 1.5 and even lower over the past century or so.
There is thus an entirely reasonable strategy. Go and restest, every few decades, those old and worked out mines to see whether they can be reopened. This being what Goldstone is doing in the Ashanti gold belt in Ghana. There’s been mining there since at least the 14th century – one of the reasons the Portuguese tried to sail around Africa was to get to those gold fields.
This doesn’t mean that the process is easy, it just means that it often does work. As we’ve pointed out before, first Goldstone had to gain the environmental permit. Goldstone shares also rallied on the first gold pour. As we’d expect them to of course, it’s a validation of that strategy, being able to actually extract gold.
The operational update from Goldstone Resources equally tells us that the process is not problem-free. The ore itself was a little different from what was expected, a problem that arose while trying to actually process it. There are problems that aren’t even known until you try to actually do something after all. The specific problem here was more clay in the material which reduces processing efficiency. That required a re-jig of the process which has been done. So, gold production ceased while that was done and is now back on track.
The prediction is for 20,000 ounces of gold production this year. That’s at an all-in cost of $970 an ounce and current achieved sales value is $1,907. That’s a good gross margin of course which has allowed Goldstone to cover some past debt and also continue the exploration programme – to see whether there’s more ore amenable to modern processing at the two sites.
Production costs might well decline further, organisations just do become more efficient over time. There’s also the possibility that inflation will increase again the price of the gold output.
It’s likely that significant movements in Goldstone’s share price will come from results of exploration at Akrokeri. That is, unlike Homase, currently not producing. It is instead the next application of that old mining technique, can we revive an old mine using new technology? As and when those results come through we could see a revaluation of the company as a whole.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.