Argonaut Research has initiated coverage on Tolu Minerals Ltd (ASX:TOK) after taking a three-day site visit to the company’s Tolukuma Gold Project in PNG.
Tolu has been given a 'Speculative Buy' rating by Argonaut and a $1.60 price target, representing 112% upside to the current share price.
The research group summarised, “Overall, we are attracted to the story as it provides exposure to a potential multi-million-ounce system without the need to fund a new greenfields build in PNG.”
Tolu has been working to restart the Tolukuma operation since it acquired the project in late 2023 and listed on the ASX. The company’s restart activities are well advanced ahead of plans to start small-scale gold production later this year.
Chance to unlock project value
From 1995 to 2015, Tolukuma operated as a high-grade, small-scale gold mine, boasting impressive production figures during its prime. Initially, the mine produced 55,000 ounces per annum at over 20 g/t gold, before production increased under DRD Gold from 2000 to 2006, reaching up to 71,000 ounces per annum at a still formidable 12 g/t gold.
Key to the mine’s revival is the completion of crucial infrastructure projects. Historically, Tolukuma relied heavily on helicopter logistics — a costly endeavour that contributed from 25% to 60% of operating costs. Tolu plans to finalise road access, slashing logistical costs and enhancing operational efficiency. Notably, Tolu is on track to complete road access by the end of this year.
Significant opportunity
Argonaut highlights the scale of the mineralisation at Tolukuma as “impressive and well beyond what we expect a small cap (~A$80 million enterprise value) developer to control”. The project has an exploration target of 2-3 million ounces of gold grading between 8-11 g/t gold.
This substantial endowment underscores the potential at Tolukuma to “ramp up back to a ~60,000 ounce per annum operation as a platform to fund further development and drilling required to unlock a multimillion-ounce system at Tolukuma”.
A unique story
Argonaut recognises that the operation isn’t without challenges, noting that while PNG has some of the world’s largest gold deposits, "it remains a challenging place to explore and develop a new mine due to the steep topography and remote locations of prospective regions".
“Tolukuma is a unique story where investors have exposure to the prospectivity of the New Guinea Metallogenic Belt without the need to fund a Greenfields project through expensive exploration and development.
“Usual ramp-up risks are there but if Tolu can successfully navigate through the ramp-up period then the gold endowment is there to support a long mine life with a production profile beyond the nameplate 220,000 tonnes per annum milling capacity.