Like most in the market, Garimpeiro has largely ignored the precious metals stocks in 2023. But he reckons it is time to shine a light on the sector now that gold and silver prices are on the march.

Thanks to some banking collapses forcing central banks to tip toe around more inflation-beating rate rises in case more rises lead to recession, gold and silver have had a good last 30 days.

The US gold price is up by 8% in the last 30 days to a mid-week price of $US1,966/oz while silver has put on 12% to $US23.25/oz.

Citi’s commodities desk put it sweetly during the week when it said it was time for gold and silver to “shine bright like a diamond.’’

“We are structurally bullish on gold and silver into the end of 2023,’’ Citi said.

“And even if prices fail to make outsized gains, we see precious metals as a decent tail risk hedge in the current macro environment.’’

Garimpeiro couldn’t agree more.

Cito has upgraded its 0-3 month and 6-12 month gold price target to $US2,100/oz and $US2,300/oz respectively, from the current $US1,900-$US2,000/oz levels. What’s more, it assigns a 30% probability that gold will spike to record (nominal) levels of $US2,100-$US2,300/oz at some point over the next 2-6 months.

As for the poor man’s metal of silver, Citi reckons it could scoot off to $US25-$US28/oz in the December half.

It said a definitive dovish Fed turn by the Federal Open Market Committee in May would add “deeper conviction’’ to its gold and silver price forecasts.

The potential for gold to build on its recent gains and hit record (nominal) levels (silver has a long way to go to get to record levels) should have the ASX gold sector up and about. And it has been, to a certain extent.

The big name gold producers have already posted solid gains, leaving value in the sector to be found amongst the mid-tier producers and developers.

That came through in a recent Macquarie gold sector update. It found the biggest potential upside rested with West African Resources (ASX:WAF, 76% share price upside – based on March 22 prices- to reach Macquarie’s target price), Regis (ASX:RRL, 68%), Silver Lake (ASX:SLR, 47%), Bellevue (ASX:BGL, 47%), Dacian (ASX:DCN, 28%) and Westgold (ASX:WGX, 26%).

The only big gold producer that could match it with the mid-tier producers and developers was Northern Star (ASX:NST, 29% upside to Macquarie’s target price).

Garimpeiro’s playground is amongst the gold explorers where strong gold prices amplify the market’s response to good exploration results. He has gone looking and reckons Southern Cross Gold (ASX:SXG) is one to watch in coming months.

As for the silver stocks, they don’t get the sort of coverage from the brokers as the gold stocks do. Again fending for himself, Garimpeiro reckons Silver Mines (SVL) has to go on the watch list as it is about to tick off a couple of major re-rating events.

SOUTHERN CROSS: Trading at 69c for a market cap of $127m. Expect a strong newsflow from this one as it has kicked off a 30,000m drilling program at its Sunday Creek project, 60km north of Melbourne, just off the Hume Highway.

Garimpeiro has been receiving inquiries from Perth-based mining types on SXG which given its Victorian focus, is most unusual. That goes to the building story at Sunday Creek where drilling regularly pulls high-grade hits.

It is in part of the state – and has similarities to – two of Australia’s most successful mines, the high grade Fosterville and Costerfield projects owned by Canadian miners. SXG shares their Canadian heritage as it is a 2021 spin-off from Toronto-listed Mawson Gold which remains as a 51% shareholder.

That makes for a tight register which Garimpeiro always likes to see when it comes to gold explorers. At last count, SXG had close to $18 million in the till. So it is well funded for a big exploration push in 2023.

Reduce it all down and it can be said that SXG looks to be on to a multi-million ounce gold project at Sunday Creek, and along an 11km historic mineralised trend of which only an 800m has been the subject of SXG drilling.

The first taste of that upside should come in 2024 when SXG is likely to report a maiden resource estimate. While it is likely to be big enough to start thinking about production, it will just be the start of the start of the story. In the meantime, there will be regular releases in 2023 on more high-grade hits.

High grade hits are good anytime. But a distinguishing feature of Sunday Creek has been the broad widths of the mineralisation. It is what has got the interest up of the Perth-based mining types in the Sunday Creek story.

SILVER MINES: Trading at 18.5c mid-week for a market cap of $260m. This one is well known to Stockhead readers and as it has a 318M oz silver equivalent resource under its belt at Bowdens near Mudgee in NSW, it is an obvious beneficiary of the rising silver price.

Things are about to get real interesting though on two-fronts – an expected resource update, and the receipt of final approvals from the NSW government for a $246m development of Bowdens, initially as a 6Moz a year silver equivalent producer.

The resource update will be welcome for sure. But it will be final approvals for the Bowdens development that could really fire things up. It is known that American investors – they are mad keen on silver wherever it is in the world – have been standing aside waiting for the final approval to be in the bag.

So it is not one but two re-rating events for Silver Mines in coming days, most likely before Easter at any rate.
 
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

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