Barton Gold

Taking advantage of a trio of undervalued gold assets in South Australia

 


 

Privately held Australian gold developer Barton Gold has been powering past the COVID-19 dilemma of late according to managing director Alexander Scanlon, having received its Resource Exploration and Production Permits from the Woomera Prohibited Area Coordination Office (WPACO) in mid-May. Approval of the permits will allow the company to advance its gold assets in South Australia, which include the Tarcoola open pit mine, the Tunkilla project and a mill and processing plant. Barton is majority owned by boutique investment group PARQ Capital, who facilitated the 2019 acquisition of the assets from WPG Resources, a group that fell into administration in July 2018. 

 

The timing of the acquisition, in May 2019, was exceptionally timed and followed PARQ’s global macro investment strategy and 2018 ‘conviction’ call on gold as undervalued based upon an increasingly unstable geopolitical climate, global credit quality deterioration and expectations of a new economic crisis. Since taking control of the assets, Barton has vowed to extend the mineralisation and mine plan for a restart of the Tarcoola mine, and re-evaluate development options at the Tunkilla project in view of the economic options provided by ownership of the only processing facilities in the immediate region. The company is also planning an IPO on the ASX in 2021. 

 

“Barton Gold is effectively a new entity and structure set up by PARQ – the group I represent,” says Scanlon. The purpose of that strategy, explains Scanlon, was twofold: 1) Having an optimised ownership structure to simplify government approvals and reduce ongoing compliance work and costs – a distraction from otherwise value-adding work for shareholders, and 2) A clean start, as these assets were all historically owned in a series of entities that went into administration. 

 

Rather than assume the burdens associated with a complex web of entities, contractual agreements and creditors, it was simply decided to instead form Barton as a new, forward-focused entity. 

 

“That decision helped us to expedite a transaction, reduce the cost of that transaction and reduce the cost and time wasted having to deal with the ghosts of the former structure. 

 

Setting up in South Australia 

 

The transaction provided a unique opportunity to gain control of 4,735km² tenements and rights in the low risk, Tier 1 jurisdiction of South Australia, which is heavily mineralised but flies under the radar as a gold exploration region compared to the heavily contested Western Australian market. 

 

South Australia definitely suffers from a lack of attention compared to Western Australia. That is probably a function of the frameworks, policies and procedures for exploration and development [in WA] being a bit more systematically streamlinedIt’s an exciting area but perhaps a little harder to get traction in this state,” Scanlon observes.  

 

However, this does not appear to have hindered the Barton team. Scanlon and his team have set out to change this impression, and to lead the re-emergence of a large portion of a region in South Australia known for previously yielding globally relevant assets. The opportunity for success is attested to by the existence of BHP’s Olympic Dam – one of the largest polymetallic mines in the world – and OZ Minerals’ copper-silver-gold Prominent Hill facility. 

 

Asked exactly how Barton were able to gain traction so quickly, Scanlon says it was a matter of providing confidence and building trust with regional stakeholders. “We have been able to enter South Australia off the back of the reputation of our technical partners Mining Plus and the Byrnecut Group, as well as Primero Group, but also our own private reputation for taking mining assets in difficult situations and creating value. I think that helped build an initial relationship and trust with the South Australia Government. 

 

Turning away from Challenger 

 

Barton’s acquisition of WPG’s assets also included the Challenger underground mine, which has historically produced around 1.2 million ounces (Moz) of gold, but is not without its own difficulties as its name coincidentally suggests. 

 

The asset has complex geology and orientation that has caused headaches for developers in the past, according to Scanlon. “It requires a great deal of forward development investment and structural analysis before you go mining. 

 

“Unfortunately when the former owners got started they did not have that forward development work done and didn’t have enough development capitalso it became a vicious cycle of taking material out of the ground for the mill without adequate information.” 

 

Despite the existence of gold mineralisation at 4 g/t, the situation deteriorated into a costly downward spiral of exploration by development at Challenger, which dragged down the former business and, perhaps most ironically, publicly obscured the high quality nature of Tarcoola. 

 

Scanlon likens the acquisition strategy to a conventional restructuring play; acquire a suite of misunderstood but quality businesses tarnished by the publicly poor results of one specific division, close the failing division, and optimise and grow those that remain.  

 

PARQ’s analysis indicated that the potential of the assets was far greater than the ‘Challenger discount’ applied to all assets, and that the market likely valued the package on the assumption of executing the same strategy. 

 

Barton will therefore defer further review of the Challenger asset, in favour of instead focusing on restarting the Tarcoola open pit and advancing the Tunkillia Project, only 80 km from Tarcoola. 

 

A walk-up restart 

 

Scanlon notes that the restart of the Tarcoola mine – which opened in December 2016 but was placed on care and maintenance August 2018 – will be a relatively simple process which will be determined by the structural extensions of the open pit and immediately proximate mineralisation. 

 

The Tarcoola asset was originally modelled on a ~2.7 g/t LoM average grade for a relatively short term operation, however when the former owners got into main ore zone in the body of mineralisation, they found multiple mineralised structures converging in the base of the pit and the ore grades jumped well over 3 g/t. 

 

“Actually, for the last seven to eight months of operation in 2018 the pit averaged over 4 g/t. So, you’re looking at a relatively tidy operation producing 3-4 g/t of material that is then trucked 160 km and put through the existing Challenger mill. 

 

“It’s is a fairly simple logistical feat to run that operation and start it up. It’s effectively a walk-up restart,” explains Barton’s boss. “We’ll bring in a contractor to run the open pit. The pit itself is competent, stable and in fact still only part way through its current mine plan. 

 

Upcoming infill drilling programmes will also target high-grade extensions of mineralisation to depth and along strike of the open pit, as part of a precise mining plan that will enable Barton to restart the mine with a greater understanding of the mineralisation and bank additional mine inventory. 

 

Tier 1 technical partners 

 

Barton’s primary technical partner is Mining Plus, Australia’s largest specialist mine geology and engineering consultancy. Mining Plus have worked extensively with PARQ for the past six years as an exclusive technical service provider, and so the arrangement with Barton is a continuation of this relationship.  

 

We have put together with them a working model where we are able to keep our corporate overheads structure and our costs quite lean by utilising their personnel as and when we need them,” explains Scanlon. 

 

The company’s strategy of employing individuals from Mining Plus on an ad-hoc basis is an efficient and cost-effective one that allows Barton to leverage its partner’s broad capabilities, including geology, geosciences, geotechnical and mine engineering and operations management. 

 

That brings these two businesses into very strong alignment and it also means that from our standpoint, when you have a group like Mining Plus with that full suite of capability and the ability to carry the whole workload, that is very valuable. 

 

“We’ve found it to lead to more informed decision making, both in terms of the quality of the work but also thinking about your geological objectives as informed by practical operating requirements. To have that fluidity of awareness and knowledge of back-to-front and front-to-back is surprisingly rare.” 

 

SA’s largest undeveloped gold-only Resource 

 

Barton’s second priority behind the Tarcoola restart is the extension of the resource at Tunkilla, which happens to be South Australia’s largest undeveloped gold-only Resource and an asset that, like Tarcoola, was overlooked by the former owners due to working capital restrictions 

 

In the case of Tunkilla, we think there are a few interesting optimisation capabilities with that project. Certainly, the recent innovation in the gold price adds a whole new level of potential attractiveness to the assets.” 

 

In particular, Barton is evaluating opportunities to target higher grade zones in an early stage open pit operation, but also the possibility for a high-grade underground mine using a simple box cut and decline method.  

 

The asset already has an existing 558,000 ounces JORC Resource in the so-called ‘223 Deposit’ with potential for extensions and regional scale confirmation of lookalike deposits on the highly prospective Yerda and Yarlbrinda Shear Zones. 

 

If you do that, you open up a wide range of opportunities because you can for one downscale your processing plant, which offers considerable savings and gives you more opportunities on logistics. 

 

The logistical synergies between the assets were a key driving factor behind the company’s decision to invest in them. While Tarcoola is around 160 km trucking distance from the mill and plant owned by Barton, the distance between Tarcoola and Tunkilla is only 80 km. 

 

If you could unite high grade ore from Tarcoola with a higher grade selection of ore from Tunkilla at a single processing plant, you can reduce trucking distance by diverting Tarcoola ore towards Tunkilla instead of towards the current plant. That might save $10 million a year and is a valuable option to have.” 

 

In addition, having access to a 650,000 tonnes per annum plant in a region where several explorers are operating without their own processing infrastructure is a clear boon for Barton. In fact, the mill is the only one in the surrounding area and if Barton were to build another plant at Tunkilla, it would have the only two plants inside a bubble with a 600 km diameter. 

 

A realistic plan and timeline 

 

Unsurprisingly, the COVID-19 pandemic has had an impact on Barton’s forward development plans. However, with a focus on risk mitigation the company had already given itself a flexible and realistic timeline with the ability to absorb this type of unforeseen circumstance. 

 

Therefore, while extension drilling at Tarcoola has been delayed from June to July or August because of restrictions on movement, Barton is using this time to further optimise critical pathway items like WPACO permits and for the restart of the pit during the second half of next year.  

 

Barton plans to begin the IPO process with the ASX in early 2021, which would transition the company from private to public hands and expedite the development of its attractive assets in South Australia. In May, the company appointed top-tier legal firm Ashurst as IPO counsel and is understood to be evaluating a wide range of additional corporate development opportunities. 

 

Finally, Barton has recently completed a multimillion dollar capital raise and is now fully funded for upcoming works as it continues discussions with institutional investors for future growth capital.