Barry FitzGerald: Waiting for the upside? These junior goldies just got the inflation print they needed
The gold juniors have finally cracked an invite to the party times the lithium stocks have enjoyed all year.
The invite came in the form of the yellow metal pushing through $US1,750/oz on the lower than expected US inflation figures, and the subsequent knock on effect of weakness in the US dollar, and a fall in long-term US bond yields.
Gold remains well short of the plus $US2,000/oz level of early March but with conditions now conducive to the price pushing higher, it was game on in the gold stocks on Friday. It was almost lithium-like.
Gains of 5-10% for the producers was the order of the day, and there was a noticeable pick up of interest in the juniors. For the last six months, gold exploration results that would usually fuel a stock price uptick were being ignored.
Assuming gold holds at or above $US1,750/oz, the junior explorers can expect a much better reception for promising exploration results in the lead up to Christmas.
And given gold exploration still accounts for about 40% of the $1.72 billion estimated by MinEx Consulting to be spent on exploration by juniors in 2022, that has got to be good for the broader mining sector.
Garimpeiro mentioned in mid and later October that he had gone hunting for value in the then-distressed gold sector which apart from suffering a weak gold price, was also having to compete with the runaway lithium sector for attention. Value opportunities were thick on the ground.
Argonaut’s funds management arm had the same idea. It recently launched the Argonaut Australian Gold Fund and has reported “very strong demand’’ for the first $5m of what could end up being a $50m fund.
It identified a valuation opportunity in Australian gold equities which had “substantially underperformed physical gold and the broader resource market, (and) given rise to this unique opportunity.’’
Like-minded Garimpeiro mentioned in mid-October De Grey (ASX:DEG) and Tietto (ASX:TIE). De Grey is up by 32% since, and Tietto is up 18%. They were oversold and were also singled out by Garimpeiro as likely takeover targets. No takeovers just yet, but $US1,750 gold is reversing their oversold status.
Garimpeiro then followed on in late October with the idea that low market cap junior explorers had simply been trashed.
He nominated West Africa gold explorer African Gold (ASX:A1G) as one to watch, the expectation being that exploration results would eventually force a re-rating of the stock regardless of what the gold price was doing, given its tiny $10m market cap.
It has moved 13% higher to 9.5c since on gold’s renewed price strength, with the suggested exploration upside in the stock still a work in progress.
Garimpeiro leaves all of the stocks listed above on his watchlist, and adds Alto Metals (ASX:AME) which is making a real go of becoming a standalone gold producer from its Sandstone project in WA. It has the added appeal of being a key piece in the region’s expected consolidation.
While there is general agreement that the lithium the sector probably has at least another 3-5 years of elevated pricing to enjoy, gold will be doing its own thing, to the upside, and the downside. So it is harder to estimate the upside from here.
But junior market specialist Canaccord has had a crack in a November 2 research note using a long-term price deck of $US1,922/oz, and a near-term (2023-25) price of $US1,830/oz. While both were down on its previous price deck, they still contributed to major share price upside, across developers and explorers.
Some examples. Auteco (ASX:AUT) was given a price target of 15c. It traded on Friday at 4.8c. Bellevue (ASX:BGL), trading as 89c versus a price target of $1.40. OreCorp (ASX:ORR), trading at 35.5c compared with a price target of 90c, and Predictive (ASX:PDI), trading at 19.5c compared with a price target of 34c.
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