Strategic Partnerships Pave Path to Production, Early Cash Flow

Gold Investing
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Strategic partnerships in the mining sector are trending as majors search for high-grade, quality projects, while juniors aim to find an expedited pathway to production and cash flow.

For a junior mining company, the transition from exploration and discovery to production is fraught with challenges. Considerable land prospecting, lengthy permitting processes and continuous capital raising for project financing all represent significant barriers. Historically, strategic partnerships (in the form of joint ventures, strategic alliances, toll milling/ore purchase agreements, etc.) have been one of the most effective ways to overcome these roadblocks.

The mining sector is increasingly beginning to recognise the value in these types of collaborative deals and their capacity to shorten development timelines to production and cash flow and reduce capital costs. They can also de-risk projects for junior miners and give established producers access to high-quality resources and an exploration pipeline. A deeper appreciation of this trend and where the opportunities lie can give investors a significant advantage when evaluating investments.

Partnering for success

The push for sustainable energy and electrification threatens to create supply shortages even for relatively abundant resources such as copper and graphite. This, in turn, has placed considerable pressure on mining companies to accelerate their production timelines while also ensuring sustainability.

Junior mining companies often lack the resources to achieve these objectives on their own. In addition to significant operating capital, they also need access to infrastructure, skilled labour and technology. These needs can quickly drive costs through the roof, potentially rendering even otherwise promising projects unsustainable.

Established mining companies face their own challenges. In lieu of exploration and discovery, some have instead opted to alleviate supply shortages through consolidation. This is a strategy that Mark Bristow, Barrick Gold (TSX:ABX,NYSE:GOLD) CEO notes is rarely successful.

"You can consolidate, but it doesn't bolster the production profile," he told the Financial Times. "Consolidation often leads to production reduction. Companies need to invest in exploring and developing new deposits."

Benefits of partnerships

For junior mining companies, the advantages of partnering with an established producer are manyfold.

The junior can gain access to the expertise, infrastructure and processing solutions of the larger company, which can expedite development and reduce both CAPEX and OPEX. Potential access to the larger company's capital also provides a strategic, de-risked pathway to production and cashflow.

By working collaboratively with the expertise and resources of an established producer, partnerships can significantly de-risk the development pathway for a junior. It can minimise risks around ramp-up issues, cost overruns or emergency capital raisings that we have seen so often by single asset developers in recent times.

Established mining companies, meanwhile, can access high-quality resources and exploration prospects to provide a future pipeline of mine life or throughput for their processing facility which they may be lacking.

Put simply, strategic partnerships between juniors and majors allow each proponent to prosecute what they do best and share in the economics.

Noteworthy deals

Strategic partnerships in the form of joint ventures, strategic alliances, toll milling/ore purchase agreements and others are becoming increasingly prevalent in the mining industry, particularly in the Western Australian gold sector.

On May 30, Ora Gold (ASX:OAU) announced a strategic alliance and $6 million placement with Australian gold producer Westgold Resources (ASX:WGX,OTCQX:WGXRF). The Westgold transaction provides a clear pathway to commercialising Ora’s Crown Prince gold deposit (part of the company’s Garden Gully project) in a strong gold price environment and enables Ora to leverage Westgold’s internal resources, intellectual property and infrastructure to accelerate development.

Ora and Westgold are now working towards finalising an ore purchase agreement where ore from Crown Prince will be processed at Westgold’s Bluebird mill (33 kilometres from Crown Prince) and other strategic collaboration initiatives to share infrastructure and expertise. Proceeds from the strategic placement and current cash will allow Ora Gold to fast track further resource development, project development and mining proposal work streams at Crown Prince and continue systematic regional exploration across Ora’s commanding 677 square kilometre tenure.

Brightstar Resources (ASX:BTR) completed a mining joint venture with BML Ventures that involved a 50/50 profit-sharing agreement to develop the Selkirk deposit at Menzies, with ore processed at Genesis Minerals’ (ASX:GMD,OTC Pink:GSISF) Gwalia mill. In April, Brightstar announced that this joint venture delivered a net profit to Brightstar of $6.5 million.

Horizon Minerals (ASX:HRZ) has entered into strategic toll milling and ore sale agreements with FMR Investments and Paddington Gold, respectively, moving the company closer towards its goal of becoming Western Australia’s next gold producer.

Black Cat Syndicate (ASX:BC8,OTC Pink:BLCAF) announced an 850,000 tonne ore purchase agreement with Paddington Gold from Kal East’s Myhree and Boundary open pits, which will provide Black Cat with significant funding to support the planned restart of its Paulsens project.

Investor takeaway

In an industry that increasingly demands accelerated, on time and on budget development, strategic partnerships are quickly becoming an optimal path for both junior and major miners to use their respective expertise to access and de-risk high-quality resources, bring them into production and share in the economics.

And for investors, strategic partnerships result in more valuable, less risky assets to add to their portfolios.

This INNSpired article is sponsored by Ora Gold (ASX:OAU). This INNSpired article provides information which was sourced by the Investing News Network (INN) and approved by Ora Gold (ASX:OAU)in order to help investors learn more about the company. Ora Gold (ASX:OAU) is a client of INN. The company’s campaign fees pay for INN to create and update this INNSpired article.

This INNSpired article was written according to INN editorial standards to educate investors.

INN does not provide investment advice and the information on this profile should not be considered a recommendation to buy or sell any security. INN does not endorse or recommend the business, products, services or securities of any company profiled.

The information contained here is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Readers should conduct their own research for all information publicly available concerning the company. Prior to making any investment decision, it is recommended that readers consult directly with Ora Gold (ASX:OAU)and seek advice from a qualified investment advisor.

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