Perth-based Troy also has another claim to fame — it currently holds the title of having the lowest cost gold mine in Australia.

Which means Troy, with a market capitalisation of just under $30 million, is on track to report a $10 million pre-tax profit for the 1999-2000 financial year.

 

 

Troy Resources chairman, John Jones ... views the Sandstone area in Western Australia as "a serious company-making opportunity".

With only 44 million shares on issue, that equates to earnings of 22.7c per share and a price to earnings ratio of less than three for the debt-free company.

For that reason alone, chairman John Jones thinks Troy’s share price should be a lot higher than the 65c level it was trading around at press time. Jones says there is little factored in for the “blue-sky” that used to be afforded small mining companies, largely as a result of the low gold price, difficult market conditions for resources stocks and investors shying away from the mining sector at the junior end.

Numerous resources analysts have been promoting the value-for-money and potential upside to be gained in the resources sector at the moment. In particular, emerging producers, like Troy, are considered attractive as they offered good leverage to any rises in the gold price because of their unhedged production status.

Hartley Poynton analyst, Richard Harris, said Troy had a valuation of 73c, based on estimated gold production of 60,000oz at an average cost of below $200/oz. CIBC’s Ian Prentice concurs with the Hartley Poynton valuation.

Troy’s share price upswing (rising from 30c 12 months ago and a low of 21c last August) to its current level has been driven by the success of the company’s Sandstone operation in Western Australia.

Jones said the rapid development of the Bulchina deposit at Sandstone was a credit to the company’s staff, after exploration and evaluation programs in relation to Bulchina had commenced in January 1999.

In June 1998, Troy paid $400,000 for an 80% interest in Wirraminna Gold, then earning a 60% interest in the Mt Klemptz joint venture property — which took in the Bulchina prospect — from Cambrian Resources after Battle Mountain Gold had elected not to continue. Cambrian subsequently sold its 40% stake in the joint venture for 7.4 million Troy shares and $500,000 in cash, which equated to about $2.9 million. Troy bought the remaining 20% of Wirraminna for $800,000 cash and 1 million Troy shares.

In the seven months leading up to production start-up in August last year, the company carried out a drill-out program to define resources and reserves, negotiated native title agreements, completed a feasibility study, purchased the remaining 20% interest in the project, and bought the Twin Shafts processing plant for $1.5 million from Herald Resources.

“We are particularly fortunate to have established such a strategically important presence in the Sandstone area where good infrastructure, plant availability, defined profitable reserves and outstanding exploration potential present Troy with a serious company-making opportunity,” Jones said.

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The Bulchina mine really came of age in the March quarter, producing 15,135oz at average cash costs of only $140toz, making it the lowest cost mine in Australia.