Geopacific Resources (GPR) - Gold Production in Q4/22 & Showing Scale

We recently chatted with Tim Richards, CEO of Geopacific Resources, an Australian gold and copper development company. Richards is a recent arrival to Geopacific, taking up his position in October 2020. He shared company plans regarding their Woodlark Project, in the Milne Bay Province of Papua New Guinea (PNG). 

Company Overview

Geopacific Resources has a portfolio of assets in several countries in the Asia-Pacific region. The company is currently highly focused on developing the 1.6 Moz. Woodlark Gold Project in PNG. The company trades on the ASX and it has over 218,000,000 shares outstanding.

Executive Leadership

In addition to Richards, the leadership at Geopacific is composed of Ian Clyne, Chairman of the Board; Matthew Nigel Smith, Chief Financial Officer; Steven Whitehead, Acting Exploration Manager; and Mike Meintjes, Company Secretary. A five-person board assists with company direction.

Woodlark Gold Project

The Woodlark Gold Project is a high-margin gold project with significant exploration upside. It is located on Woodlark Island in the Solomon Sea. The project has been in existence since 1895 and is part of one of the historic goldfields of PNG. 

Woodlark has passed through various companies since that time. Placer held it in the 1990s. Kula Gold picked it up in the early 2000s. Geopacific acquired Woodlark from Kula in 2016 and now owns a 100% interest in the project. Geopacific inherited the results of over $150 million in historic spend on Woodlark, which included a wealth of data from over 275,000 m of drilling.  

A definitive feasibility study (DFS) was completed in 2018 demonstrating a robust 13-year project with a compelling development option. The DFS was updated in late 2021. The combination of low costs, a positive operating environment, and a simple processing route drive feasibility. 

Geopacific has recently completed the Final Investment Decision (FID) for the development of the Woodlark Gold Project. The Project is now fully funded and includes an AUS $3M budget for exploration activities. A simple, low-risk operation with conventional open-pit mining and a standard carbon in leach (CIL) processing plant is envisioned. As of June 2021, construction has started and they are looking to produce gold by December 2022.

Financial Situation

The revised DFS prompted management to raise money to finance the development of Woodlark. The company raised AUS $143 M via equity offering in December of 2021. There was significant institutional support.

They have recently completed debt funding with Sprott, who are providing US $100 M, comprising an $85M debt facility and a $15M stream. The reason for that specific structuring is that the pool that Sprott is funding from has a cap of $85 M per investment. The debt was funded immediately and is characterized by a 2-year capitalized interest and then a repayment period for the 3.25-years thereafter. 

Geopacific chose to do the debt financing with Sprott rather than a more conventional provider. The company believes that Sprott understands the gold market and PNG better than a traditional bank and they wanted to obtain funding as quickly and cost-effectively as possible to keep promises that they had made to the marketplace. Sprott provided the most competitive offer, especially with their quick funding. 

Today, the project is fully funded and advancing into construction. No additional market financing will be required.

Disconnect With the Market?

When Richards took over at the helm late in 2020, Geopacific’s stock price was about $1.30. It has dropped about $1 since that time. The CEO attributes that drop not only to recent weakness in the price of gold and to jitters regarding Geopacific recent of debt financing, but also to the fact that there may have been some long-suffering Kula Gold shareholders who’d seen quite a lot of money spent and were expecting a quicker return.

It’s taken another 5-years since Geopacific assumed full control of the asset for the Woodlark project to advance to its current stage of development. There were several reasons for that. Some of the environmental work needed to be refreshed, and there were amendments that were needed regarding the mining permit. Additionally, Geopacific also undertook a substantial amount of additional drilling just to flesh out the resource because in retrospect, the original Kula feasibility study was probably a bit underdone and it would have been difficult to fund.

Richards thinks that people are aware of the growth opportunity with Pacifica. The company has certainly highlighted that in its marketing efforts and during its discussions with retail and institutional investors.

Over the next 18 months, Pacifica will develop the project and build the plant. Once people see that the build is progressing smoothly by early next year and there’s quite a bit of construction completed, then Richards believes that investors will value the upside that Woodlark really has.

Market support is picking up especially on the institutional side. In addition to Sprott, Temba and Delphi have been involved. More people will become shareholders, believes Richards, as the news gets out that there are no further funding issues outstanding. There have never been any concerns about the quality of the resource. Construction is progressing well, on time, and on budget. Geopacific is expecting investors to value the company for its true worth.

Papua New Guinea

Richards told us that Geopacific is quite happy with the business conditions in PNG. The country is very relationship-oriented when dealing with companies. Some of Richards’ prior business experiences in PGN taught him that personal relationships are key, especially when trying to obtain permits and licenses.

Since Richards joined Geopacific in 2021, relationships with key government officials have been phenomenal. The company has the three documents required to mine in PNG: Environmental and mining permits are in place through 2034 as well as an open-ended compensation agreement that has been signed. There are no blockages to prevent Geopacific from executing the business plan. 

Additionally, environmental, social, and governance (ESG) factors are actually quite easy to manage in PNG. However, if you don't abide by ESG, your operation will be immediately shut down. In PNG, stakeholders in the local community will drive any shutdowns that may occur. This means that you get very rapid feedback on how you’re performing from an ESG perspective. 

Geopacific is deeply attuned to the welfare of the community. In addition to building a school and clinics across Woodlark Island, they provide free medical services to all community members on the island.  They are employing many local people. And even better, they’ve committed 3M Kina (1 Kina = 0.23 US dollars) over the next 18 months to business-development initiatives including seed capital, helping island residents become small-business owners.

Definitive Feasibility Study (DFS) Recap

The DFS numbers were modelled assuming a gold price of AUS $2,200 per oz., upfront capital of $225 M, and a ten-year mine life. Based on that, the Woodlark project has a post-tax NPV of AUS $350 M with an IRR of 34%. Importantly, capital payback would occur within 1.8 years and net cash would be reached after 14 months. Geopacific is comfortable producing in excess of 100,000 oz. each year. Sustaining costs over the lifespan of the mine are estimated at AUD $1,239 M.

Upside Potential at Woodlark

In addition to the mine site itself, there is blue-sky exploration potential associated with the Woodlark project.  Geopacific is very confident that in the period up until the first gold pour, it can continually add a lot more ounces to the reserve base. 

Woodlark currently contains a 1.6 Moz. resource. AUS $3 M is dedicated to exploration drilling, which will commence before the end of 2021. All of the three million is ring-fenced for drilling and assay costs alone. Up to 40,000 m of cumulative penetration is expected. 

Initially, the exploratory focus will be step-out to the two main pits, Kulumadau and Busai, which comprise 90% of the reserves at Woodlark. In the past, add-on exploratory drilling near Kulumadau has been tricky because historically part of the local community lived there.  As Richards put it “People aren’t really comfortable about you drilling in the schoolyard”.  A community relocation program will be completed by October 2021, and that will enable Geopacific to access the remainder of the Kulumadau occurrence. 

In addition to the $3 M, there is plenty of money sitting in reserve for exploratory work as needed. Defining the real size of the ore bodies at the Kulumadau and Busai pits over the next 18 months comes first. Richards told us “It’s not too many mines that go into production with their 2 main pits poorly defined, which is the reality of the situation we find ourselves in”.

Once that’s done, the company will reassess how much money is needed to explore all of the other opportunities on the mining lease. There are at least a dozen really good targets that need exploratory evaluation. The size of the prize over the whole of the lease could be in the 3 to 5 M oz. range when all is said and done, Richards believes. In addition, close to 60% of Woodlark Island is covered by tenements that Geopacific owns, and these have been barely explored historically. Any additional ounces discovered on those tenements will be easily milled and valued by the plant that is under construction.

Richards’ Role and Focus

In addition to previous in-country experience, Richards brings several other components to the Geopacific team. There was a perception among some investors that Geopacific was a pure exploration play. Richards has experience in project developments, extensions and expansions. 

His previous experience in mine building in PNG during his six-year tenure at Simberi, one of the largest gold mines in PNG, is key. At that project, Richards brought the production costs down considerably and sustained those cost savings for years. 

Jurisdictionally, he brings a wealth of in-country knowledge. He shared with us that PNG is not an easy place to come into and hit the ground running. Investors were looking for someone with an in-country operations background to take the helm of the company. 

Richards closed out the conversation by reiterating that, despite the recent downswing in gold price, the Woodlark project has strong merits. Funding has been addressed and is not an issue. Long-lead items are already ordered. Investors should look to upcoming quarterly summaries that will be demonstrating steady progress. Also, they should be tuned in for exploration news that will be coming out in the last quarter of this year.

To find out more, go to the Geopacific Resources Website