Vault’s Cash Flow Potential ‘Under-Appreciated’

Commodities | 10:30 AM

While a new three-year plan by Vault Minerals points to rising gold production, it also points to a pivot for free cash flow.

-FY26 expected to be a transitional year for Vault Minerals
-Three-year plan points to strong production outlook
-On-market buyback marks inaugural return to shareholders
-Analysts suggest investors are under-appreciating future cash generation

By Mark Woodruff

ASX-listed midtier gold producer Vault Minerals ((VAU)) offers a clean blend of near-term cash generation and longer-term growth as the hedge book rolls off through FY26, leaving the company some 95% exposed to spot gold by 1H FY27.

UBS notes the shares have outperformed peers over the past two months, helped by the gold price rally, succession announcements and the launch of an on-market buyback of up to 10%.

Management’s new multi-year guidance frames FY26 as a transition year, with production expected to dip -6–13% versus FY25's volume before returning to growth through FY28. While FY26–FY27 production guidance landed -5% below consensus, Barrenjoey comments guidance for costs and capex is broadly in line.

Importantly, the FY26–FY28 plan points to as much as 20% production growth from the FY26 base, funded entirely from internal cash flows.

Macquarie views the three-year outlook as a “reserve base case”, likely to be exceeded via incremental extensions at Mt Monger and Deflector.

Formed in mid-2024 via the merger of Silver Lake Resources and Red 5, Vault is now a diversified gold producer with four core operations: Leonora (King of the Hills and Darlot) in WA’s Leonora district, Mt Monger and the gold/copper Deflector mine (both in WA), and Sugar Zone in Ontario, Canada.

Leonora is the flagship, base-load asset with 10-plus years of mine life. Ongoing drilling and a Stage 2 open-pit expansion at King of the Hills have lifted Leonora ore reserves by 39% to 2.8moz, with the broader Leonora mineral resource now exceeding 6.2moz.

Acquired in 2022, Sugar Zone remains on care and maintenance while a turnaround plan is finalised. Over the past 18 months, drilling has increased reserves by 20% to 389,000oz, with total resources at 1.23moz; management targets a restart in 2027.

While strategy and the operating team are unchanged, a CEO search is underway. Long-serving Managing Director Luke Tonkin plans to step down by mid-2026.

Guidance in more detail

Vault’s FY26 gold output is forecast between 332,000-360,000oz with costs (AISC) of -$2,650-2,850/oz.

The lower production forecast for the year ahead (FY26) compares with 380,985oz produced in FY25 and is mainly the result of lower output at Deflector, reflecting the shift to an owner-operator model and the start of new mining areas, explains Jarden, while production at Mount Monger and KoTH is expected to remain steady.

The current mining services contract at Deflector concludes in December quarter 2025. While the broker explains the subsequent transition will temporarily lift costs and reduce production, it is also expected to deliver lower operating costs over time.

Group costs are expected to rise over FY26 due to lower production and transition costs at Deflector, while at Mount Monger the increase reflects additional expensed mining as the Santa strip ratio falls, even though absolute spend declines from FY25, Jarden explains.

At Leonora, higher cash costs from increased material movement are largely offset by a significant inventory credit, note the analysts, which masks the higher absolute spend in dollar terms.

Thereafter, higher throughput and new ounces are expected to drive production back up: FY27 guidance is for 360,000-390,000oz, and FY28 for 370,000-400,000oz.

Production growth is driven by expanded plant capacity at Leonora as well as the restart of production at Sugar Zone in FY28.

FY28 guidance represents a significant ‘beat’ versus Petra Capital’s prior 328koz forecast largely due to the restart of Sugar Zone.

The Sugar Zone restart largely offsets the decline at Deflector, this broker explains, and is seen as a positive step toward sustaining Vault’s medium-term gold production.

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Improving cash flows

Barrenjoey believes Vault’s potential for future cash generation is undervalued relative to many peers.

While Vault may not deliver the strongest sustainable production growth, this broker suggests the company offers a compelling free cash flow pivot. This is expected to arise from three factors: rising cash flow in FY27–28 as most hedges roll off by end-FY26; completion of capital spending at the KoTH mill by December 2026; and a favourable shift in stripping and grades at Mount Monger from FY27–28.

These factors bode well for both cash flow and margins, even as costs are guided to remain in the mid-$2000s/oz range. Management has indicated FY26 unit costs will be broadly in line with the prior year, with elevated waste stripping and development investments setting the foundation for improved output in subsequent years.

Despite sustained investment, Vault generated significant free cash flow in FY25.

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