Otago remains one of the most significant areas for gold exploration in the country with a large number of junior companies spending more than $10 million, but some consolidation appears imminent for the sector.
Mining is worth more than $1.5 billion to the New Zealand economy, including coal, fertiliser and roading aggregate, with more than 12 tonnes of gold per year generated from Otago and the Waikato, plus alluvial gold from smaller operations around the country.
Otago has yielded more than 10 million ounces of gold in the past 148 years and remains one of the‘‘hotspots'' for inquiries and permit allocation, Government permit agency Crown Minerals says.
Otago exploration amounted to $800,000 in 2000, $2.5 million in 2002 and will easily total more than $10 million in 2007-08.
The unprecedented minerals boom in Australia during the past five years has seen investors eager to get on board, propping up hundreds of initial public offerings for newly-listed companies, primarily on the Australian stock exchange.
While investment in gold explorers and producers is considered at the high end of risk and rarely delivers rewards in the form of dividends, the rewards for investors can be huge in rocketing share prices if the prospect is on-sold to a major miner or moves to production status.
The global credit crunch has seen increasing numbers of investors flee to the relatively and historically safe haven of gold bullion.
Subsequently, the gold price pushed passed $US1000 for the first time in early-March, further underpinned by the emerging Indian and Chinese middle-class love affair with gold and growth of annual festivals in which gold is a focus on those continents.
While the gold price is a boon for companies already in production, investor interest in backing junior explorers is waning, largely because of the risk involved. In Australia, a stream of dozens of initial public offerings 12 to 18 months ago has now dried to a trickle.
More than 150 permits are held for mineral claims in Otago at present, including many multiple holdings for the likes of miners Oceana Gold and explorers Glass Earth Gold.
There are also many not-for-gold permits, for the likes of Fulton Hogan, the Dunedin City Council, Downer EDI Works, Delta Utility Services, Holcim and Queenstown Lakes District Council.
ABN Amro Craigs broker Peter McIntyre believes exploration funds for juniors are drying up and there will consolidation in the sector, with larger companies either banding together, or going it alone, to buy out juniors.
‘‘A lot of the start-up companies will struggle because of their lack of ability to get in and get at the gold. They are undercapitalised and could be picked off,'' he said yesterday.
The downturn of investor interest in Australian companies would be reflected here.
- Oceana Gold Corp, listed principally on the mining-friendly Toronto stock exchange now, remains New Zealand's largest gold producer, ahead of Newmont in Waihi.
Oceana is confident of delivering 280,000 to 300,000oz of gold this year from its open pit and underground mines at Macraes in East Otago and its year-old open pit mine at Reefton on the West Coast, which sends concentrate to Macraes for completion of the refining process.
Oceana's near-term activities will be underpinned by the mining growth in New Zealand, but for analysts and investors, its development of a gold and copper mine, at Didipio, in the northern Philippines, holds most attention.
Oceana propelled itself into the lower mid-tier of Australian gold miners with its cashless merger with Sydney-based Climax in 2006, but to fully cement itself in that tier, it has to get the Philippine project from development and into production by next year, as forecast.
As the output of its Reefton and Frasers underground projects comes to fruition and provides a solid foundation for growth, analysts are closely scrutinising the Didipio project for potential problems.
Oceana chief executive Steve Orr was confident in February Didipio would be commissioned and operating by mid-2009. The project, valued at more than $US155 million, recently let a $A54 million contract for prestripping and open pit development.
Oceana forecasts about 300,000oz of gold from New Zealand and gold and copper (equivalents) from Didipio, delivering a total 500,000oz, by 2010.
Crown Minerals acting acting manager for minerals, Matthew Brown said there had been a surge of interest in Otago, and it remained one of the country's most prospective permitted areas.
‘‘Otago stands very high on a national scale. It's considered one of the hottest spots because of the volume of gold, such as at Macraes, with a further 10 to 15-year life,'' he said.
However, he emphasised there were a lot more areas around Otago where there was a need for more fundamental geological interpretation.
Junior companies filling that role include Tasman Gold, Glass Earth Gold, Ophir Gold, Underworld Resources, Australasia Gold, and Prophecy Mining.
Tasman Gold, with its Merrivale project in the Longwood Range northwest of Invercargill, and Bullendale Reef, about 30km north of Queenstown, is targeting hard rock, gold-in-quartz prospects.
It listed on the Australian exchange in December 2007 and raised $A5.1 million. It has allocated about $450,000 to Otago and Southland exploration, hoping to get test drilling in Southland and Central Otago under way by the end of the year, the former on a 1km long by 300m wide target.
The Round Hill area at the southern end of the Longwood Range delivered about 80,0000oz in the late-1800s, but many records for the area were lost in a fire about 100 years ago.
Tasman's 367ha Bullendale prospect, high above Skippers Creek, produced at least 40,000oz from mainly alluvial diggings and encapsulates what many miners in general face, with its difficult, mountainous access.
Tasman's exploration manager Peter Nicolson said while its Mt Adrah and Challenger prospects in New South Wales were of most interest, both the Merrivale and Bullendale were of equal interest for further exploration and were pencilled in for drilling, possibly beginning in late-2008.
‘‘We're costing a helicopter geophysical survey at present and hope to be following that up with drilling at six sites; two holes at each,'' Mr Nicolson said, noting the company was still in talks with the Department of Conservation.
Historical data on Bullendale included finds of up to 4 grams of gold per tonne (g/t) in schist and up to 15 g/t in quartz. The mountain goat terrain is formidable and Mr Nicolson believes tunnelling from the east side of the ridge towards the historical Phoenix working is likely the best option.
‘‘The only way we can see to developing even a small mine . . . is by drilling a low-length tunnel into the reef,'' he said.
Glass Earth Gold, with the country's largest exploration permit blanketing a large area of Otago, announced in March it was tripling its local exploration budget to $3 million, believing it might have found two Macraes-type gold-bearing ore bodies.
Glass Earth raised $10 million in October 2006 in a dual listing on the New Zealand and Toronto stock exchanges, having earlier purchased Dunedin-based HPD NZ and its 22 permits covering 4724sq km. It raised a further $6.3 million from Canada in August.
The company has not done any drill testing in Otago, but has already spent $4 million in magnetic and electro-magnetic aerial surveys to date.
It is giving priority to the historical Serpentine prospect on Rough Ridge, 13km north of Lake Onslow, the Gold and Pine area near Gabriels Gully at Lawrence, and the Game Hen site near historic Hindon workings.
Glass Earth chief executive Simon Henderson says it is likely to take more than a year to complete 15 to 20 test drill holes.
Yesterday, he said a drilling programme of four holes could begin at Serpentine within three weeks.
Glass Earth was criticised for its blanket permit, but is required to relinquish 25% within a month.
Mr Henderson expects more will have to dropped in November, but notes a further two years will be sought for some areas.
‘‘We have enormous issues ahead of what to relinquish, because of the amount of prospectivity we have discovered,'' he said.
Underworld Resources Inc is test drilling at its Golden Progress prospect near Oturehua, where it has committed about $1 million in exploration funding during the next three years.
Ophir Gold, which has in the past been considering a $2 million float, has confirmed this week it will go for a reverse stock market listing, releasing a prospectus by the end of the month, offering stock to private professional investors.
Ophir has test drilled some of its prospect near Omakau and results from the 13 holes had boosted previous estimates of the gold resource - to date using a pool of almost $1 million in private investor funds.
Ophir director Alistair Ward confirmed the proposed listing yesterday, saying another drilling programme of similar size to the previous programme was being planned.
Australasia Gold has entered into a joint-venture arrangement with Glass Earth and, depending on forthcoming aerial results, may consider drilling programmes at Naseby or St Bathans, its managing director, Trevor Ireland, said from Australia yesterday.
Crown Minerals' Mr Brown said small-scale prospectors, mainly targeting alluvial claims, were helping stimulate local economies by employing up to four people and contractors.
All exploration added to the database of prospects, but the time was coming for many of the larger commercial juniors to reveal ‘‘the rotary truth'' - an industry quip referring to providing hard evidence from test drilling results.
While the sector in general remains buoyant and the likelihood of finding more gold in Otago is no less diminished than five years ago, the juniors face increasing pressure to find a mineable gold resource of significance, sooner rather than later.
