Aboriginal heritage delays contribute to huge cost blow-out for Regis Resources’ McPhillamys gold mine in NSW

A staggering increase in the projected cost of Regis Resources’ McPhillamys gold project in New South Wales, which is being plagued by an Aboriginal heritage roadblock, threatens to derail the precious metal miner’s long-awaited growth ambitions. Shares in Regis copped a beating on Wednesday after it revealed the estimated price tag to bring the project online had almost doubled to now sit between $960 million and $1.055 billion, including construction and pre-production costs. The Jim Beyer-led miner noted the last “detailed” announcement on McPhillamys was a preliminary feasibility study released in late 2017, with “clearly well out of date” cost assumptions that market analysists had used to tip a cost of between $550m and $650m. “These increases reflect not only the global industry-wide inflationary environment and the passage of time but also, amongst other factors, the project development requirements emanating from the results of the NSW planning approvals process,” Regis said in a statement to the Australian Securities Exchange. Shares in the company were down 4 per cent to $1.94 to close trade. Regis has been stuck in bureaucratic purgatory since October 2020 when a Wiradyuri Elder submitted a Section 10 application against McPhillamys. Under Section 10 of the Aboriginal and Torres Strait Islander Heritage Protection Act 1984, an application can be made to the Federal Department of Climate Change, Energy, the Environment and Water to request the protection and preservation of significant Aboriginal areas. The Federal Minister for the Environment Tanya Plibersek then makes a declaration on the application, however there is no statutory timeframe for how long this can take. Regis has received all other substantive State and Federal approvals and is now waiting on a response to the Section 10 application. On Wednesday Regis said a definitive feasibility study was due to be completed around the end of the financial year and would look to rein in pre-production costs of between $115m and $155m. It also acknowledged significant scoping changes to the project covering site layout, access to power and water management had added to the blow-out. The changes would need to be signed off by NSW regulators under a modification application, which could take up to 10 months to secure. A final investment decision is expected once the new approvals are in place, with construction set to take two years. “The general cost inflation seen globally for construction and permitting required scope increases have clearly escalated costs for McPhillamys,” Mr Beyer said. “We are taking the necessary time to reduce, as far as we can, the capital required to bring McPhillamys into production through value engineering optimisation. “McPhillamys is a key part of Regis’ future growth and remains an attractive gold project that, at current gold prices and under our current all in sustaining cost assumptions, delivers strong margins with clear upside potential via this rising gold price environment and with mine-life extension opportunities that go well beyond the current plans.” Gold has been resetting record highs this year as investors continue to pour into the safe-haven precious metal. At a spot price of $US2250 an ounce, it’s up about 38 per cent from its last low point in 2022. But RBC Capital analyst Alex Barkley said the glistening price environment may not be enough for Regis to wear the extra cost of McPhillamys, which lies about 250km west of Sydney in Central NSW, and the increased estimated had put the project “in doubt”. “A substantial increase in forecast McPhillamys capex could potentially render the project uneconomic, in our view,” he said in a note. “Life-of-mine AISC of $1600-$1800/oz also exceeded our forecast of $1550/oz. “Given the history and delays of the project, we consider the market to place limited value on the project.” Mr Barkley said McPhillamys could also be competing for capital spending on new underground developments at Regis’ Rosemont and Garden Well mines at its Duketon hub north of Laverton in WA’s Goldfields. RBC has a negative sentiment for Regis with a price target of $2.60.