Unlocking Vault’s Golden Potential

This story features VAULT MINERALS LIMITED. For more info SHARE ANALYSIS: VAU

Analysts agree on a golden outlook for Vault Minerals with upside from organic growth initiatives and optimisation following the recent merger of Red5 and Silver Lake Resources.

-Analysts positive on post-merger prospects for gold producer Vault Minerals
-Upside from drilling programs at Sugar Zone and KOTH
-Excess cash provides growth and capital management options
-Vault is the favoured exposure within resource coverage at Moelis

By Mark Woodruff

Incorporating the chemical symbol for gold (Au), Vault evokes imagery of a secure and enduring store of value, which management deemed fitting when naming Vault Minerals ((VAU)) following the merger of Red5 and Silver Lake Resources on June 19.

Before the merger, all six covering brokers tracked by FNArena had Buy or equivalent ratings for Red5, and three out of four analysts rated Silver Lake as a Buy, leading to unanimous Buy ratings for Vault today.

While the pairing brought few operational synergies, Macquarie highlighted meaningful corporate advantages from combining Silver Lake’s balance sheet firepower and strong cash generation with Red5’s cornerstone King of the Hills (KOTH) operation.

Not only does KOTH have a material mine life, but also latent optimisation potential plus a powerful processing presence in the Leonora district of WA, explained the broker.

Management of the merged entity is composed of seasoned operators and dealmakers from Silver Lake, which had consistently exceeded production guidance for the Australian operations over the past nine years.

When initiating research on the new 400kozpa gold producer in mid-September, Jarden highlighted the company’s “true” upper-third quartile costs (AISC).

This “true” designation reflects valuation multiples more robust than peers, noted the broker, owing to the mature asset base and minimal additional capex needed beyond periodic capitalised waste stripping.

In short, 15 years of group operating life provides a foundation to build and shape a production portfolio, according to Jarden.

The analysts see valuation support for Vault even without factoring in expected optimisation and organic growth initiatives, while maintaining a conservative outlook on the gold price.

Diversified gold exposure

In Western Australia, operations are at Leonora, Mount Monger (near Kalgoorlie) and the Deflector Gold-Copper mine in the southern Murchison region.

Leonora includes the King of the Hills gold mine featuring both open-pit and underground mining operations with a 4.7mtpa processing plant.

Overseas, the Sugar Zone Gold Project in Ontario, Canada is currently under care and maintenance to fully evaluate the asset and implement significant upgrades.

A new mine plan will be developed after an extensive drilling program to better understand the geological structure and locate high-grade gold deposits. 

Jarden noted potential upside from the extensive drilling programs underway at both Sugar Zone and KOTH, as well as from optimisation work to deliver higher throughput and production at KOTH.

For the medium term, management’s focus will be on identifying in-pit, extensional underground and near mine exploration opportunities to underwrite further expansion at KOTH.

Balance sheet strength

Forming one of the largest war chests among mid cap gold companies on the ASX, Vault’s cash balance of over $500m, combined with the aforementioned low capex requirement and mature assets provide a point of differentiation, Jarden states.

It’s felt management has the luxury to assess all applications of capital on their merit at different points in the commodity price cycle, unhindered by onerous debt covenants and servicing interest payments.

Indeed, implementation of an appropriate capital management framework would enhance the investment proposition further, in Jarden’s view, though the earliest payment of any dividends may be delayed to the December half of FY27 for tax reasons.

September quarter

A “solid” September quarter operational report released to the ASX on October 28 revealed a pickup in planned exploration and resource extension drilling, and, on Jarden’s assessment, demonstrated management’s focus on setting up KOTH for the financial year.

Macquarie agreed FY25 is a ‘set up year,’ with stripping at KOTH and Mount Monger, which should see a doubling of free cash flow (FCF) into FY26.

For the quarter, a beat on production at Deflector, which experienced record quarterly mill throughput, was offset by lower volumes sold at KOTH and Mount Munger, explained Canaccord Genuity.

Overall production of 97.5koz missed the consensus estimate by -5%, sales were in line, while costs (AISC) were circa -4% lower-than-expected.

Production at Mount Monger and KOTH came in softer-than-forecast, partially offset by operations at Defector.

As strip ratios at these mines decline through the second half of FY25 and during FY26, Ord Minnett forecasts ore volumes and grades should commensurately improve.

Year-to-date production and sales represented 24% and 25%, respectively, of the FY25 sales guidance mid-point, which management retained at between 390-430koz.

Outlook

Petra Capital notes Vault is one of the few gold producers exceeding 400kozpa on the ASX and provides relative value when set against peer company metrics.

Moelis concurs, rating Vault as its best idea within ASX Resource sector coverage.

This broker recently suggested the announcement of FY25 guidance has cleared the air for the stock to trade upwards and close what looks like a significant value disparity.

For brokers covered daily in the FNArena database, Macquarie (Outperform) and Buy-rated Ord Minnett have targets of 50 cents and 53 cents, respectively, for Vault Minerals.

Outside of daily coverage, Canaccord Genuity, Petra Capital and Moelis all have Buy ratings, while Jarden’s Overweight rating is one rung below Buy in the broker’s ranking.

The average target of all six brokers is 50c, suggesting around 52% upside to the last traded share price at 33c.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms