Fast-forward to the present and the debt-free miner is on track to receive A$14 million in total from the Cannon gold mine 30km east of Kalgoorlie by August, it has declared a special 3c per share unfranked dividend and is gearing up to get three projects into near-term production – one of them an historic, high-grade gold mine in South Korea.
“I think it’s fair to say there was a little bit of scepticism from investors and brokers that we would actually deliver to shareholders and I’m pleased to say that has actually happened,” managing director Simon Mitchell told the Gold and Silver Investor Hub.
Southern Gold’s share price rose close to 25% for the year to June 30 as the market recognised the company was “putting its money where its mouth is”.
“We take shareholder returns very seriously,” Mitchell said.
“If you bought shares on July 1 last year for 27c, they went up 25% and you got a 3c/share dividend, so that’s another 11% on top of that – so a shareholding of our stock would’ve made around 37% for the year.
“That’s not bad for a junior company that’s also fully cashed up, operating and exploring.”
The company has been driven by its success at the Cannon gold project (pictured left), a short-term gold mining joint venture managed by Metal X’s (AU:MLX) demerged gold company Westgold Resources (AU:WGX).
Earlier this month, Southern Gold received a further A$1 million payment from the Cannon operations, taking the total payments from Cannon since December 2016 to A$11.5 million.
Mitchell acknowledged the company was unusual in that it had projects in both Kalgoorlie and South Korea, which he liked to describe as a combination of engine room and blue sky assets.
“I see the Kalgoorlie assets as the engine room of the company, it’s a mature district, we’ve got a good understanding of the geology and it’s a very solid performer if perhaps a bit unsexy,” he said.
“South Korea is a very technically-driven story, it ticks a lot of boxes for having the potential to find something truly world-class.
“On the macro side, it’s wedged between Japan and the Jiandong peninsula in China and big deposits have been found in both of those jurisdictions but nothing of that scale has been found in Korea.
“There’s no geological reason why there shouldn’t be, we can see huge potential there and that’s what we mean by the blue sky potential.”
Mitchell said the company was continuing its aim to develop smaller projects, return a portion to shareholders and reinvest at least 90% of the cashflow back into the business.
“We’re still a growth stock and I think that’s a very important distinction to make,” he said.
“Now we’re focusing on how we can repeat the exercise, what projects are next in terms of cash flow and we have three projects to potentially fulfil that.”
The trio comprises the underground potential at Cannon, the former Gubong gold mine in South Korea and the Glandore project 10km east of Cannon which is producing promising near-surface gold results.
Now the open pit mining is winding up at the Cannon pit, Southern Gold can better assess the prospects beneath (adit entrance at the base of Cannon pit, pictured right) .
Mitchell said he had been careful not to over-promote Cannon’s underground potential because it needed some technical work, but said it was an “obvious extension” of the mining operation.
As for whether an underground development would continue as a joint venture with Westgold, Mitchell said the matter was being negotiated.
“We’ve had a good experience with Westgold in the open pit, they’re a good operational group but Westgold’s priorities may change over time so we’ve kept our options open and we’ll see where our evaluation process takes us,” he said.
Turning to South Korea, Mitchell is confident the market will be surprised by the rapid progression at the Gubong gold project, historically the country’s second-largest gold mine.
Southern Gold was granted approval in June to reopen and access Gubong and Mitchell hopes to be reporting production within two years’ time, less than three years since the July 2016 acquisition.
“I think it will genuinely surprise the market how fast things can move in South Korea,” he said.
The company’s development partner Bluebird Merchant Ventures (LN:BMV) will now start to re-open the mine, conduct preliminary assessment works and evaluate re-starting operations.
Mitchell said Gubong contained 50km of underground workings and was supported by existing infrastructure, adding the most time-consuming aspect was likely to be building a small processing plant.
“It would be a pilot-scale plant by Australian standards,” Mitchell said, “but because of the high grades in Korea, it could produce up to 20,000 ounces per annum in stage one, which would generate significant funds for us and make our projects in South Korea basically organically funded.”
Mitchell said there was typically a lot of ore left in the walls of former mines and used the analogy of cutting a lemon in half to explain the remaining gold potential.
“The old-timers gave the lemon a bit of a squeeze, well we’re going to put it in a press and get every bit of lemon juice out,” he said.
“The other point is that the Bluebird group has done this many times before, so to still use the lemon analogy, they’re experts at making lemonade.”
An entity controlled by Bluebird CEO Colin Patterson has just taken a stake in Southern Gold, completing an A$250,000 placement at $0.386 per share, a 35% premium to the time of the original agreement with Bluebird in March.
Patterson’s placement was in lieu of the placement to Bluebird outlined in the share purchase, farm-in and joint venture agreement and Mitchell said it was a good vote of confidence in the company.
“It’s good to see him on the registry,” he said.
Back in Australia, the third potential near-term production project at Glandore is generating encouraging drilling results designed to confirm historic intercepts, with a recent highlight including 18.2m at 3.7g/t from 4.9m.
Southern Gold is earning up to 90% of Glandore under a joint venture agreement with Aruma Resources (AU:AAJ).
“We can see the possibility of small high-grade pits there already so we’re working on those,” Mitchell (pictured left) said, marvelling at the remaining potential in the mature gold-mining district.
“Glandore is quite a near-term priority.”
He is also keen to drill Glandore’s Lake Consols prospect to follow up on high-grade rock chips which have yielded results up to 168g/t gold and 51.6g/t silver.
“It’s incredible that even in a mature exploration district you can find outcropping quartz veins that are chipping nearly 1oz per ton gold if not more – and it hasn’t been properly drilled,” Mitchell said.
He is also excited by the prospectivity of the Taechang and Weolyu gold projects in South Korea.
He believes the former, high-grade Taechang mine is the most substantial gold project in the district, however the ease of restarting Gubong has made it the priority.
Mitchell is also looking forward to results from current drilling at Weolyu, after finding “spectacular rocks” at surface with samples returning up to 23.9g/t gold and 650g/t silver.
“If we can replicate those grades in drilling then clearly we’re onto something significant,” he said.
“South Korea provides the company with the real opportunity to find something truly transformational.”
He said Cannon’s strong cash flow had set the company up to deliver on its strategy and the company was now concentrating on its three key projects, aiming to generate further cashflow “sooner rather than later”.
Southern Gold – at a glance
HEAD OFFICE: Level 1, 8 Beulah Rd, Norwood SA 5067
PH: +61 8 8368 8888; FAX: +61 8 8363 0697
DIRECTORS: Greg Boulton AM, Simon Mitchell, Michael Billing, David Turvey
QUOTED SHARES ON ISSUE: 47.3 million
MARKET CAP (at 3 July): A$15.6 million
MAJOR SHAREHOLDERS: HSBC Custody Nominees 4.6%; Potezna Gromadka Ltd 4.4%; Eric Guerlain 4.4%; Dr Gary Branch 3.4%; Greg Boulton 3.0%