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Guy on Rocks: Bargain gold stocks are hard to come by, base metals the next value play
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‘Guy on Rocks’ is a Stockhead series looking at the significant happenings of the resources market each week.
Former geologist and experienced stockbroker Guy Le Page, director and responsible executive at Perth-based financial services provider RM Corporate Finance, shares his high conviction views on the market and his “hot stocks to watch”.
Market ructions
The big news this week was the gold price smashing through $US1800 ($2600), which has left the pool of undervalued gold miners looking a bit empty.
Aussie gold stock prices followed the precious metal up, and Guy Le Page says “valuations are now reflective of a full-blown gold boom.”
“All the majors now are trading at fairly significant multiples. Silver Lake (ASX:SLR) is trading at 2x net asset value now, Evolution (ASX:EVN) at 1.9x.
“So it’s no surprise that’s pulled up the junior end, and we’re seeing a lot of volatility on the junior end.
“A lot of people have been announcing what I’d call fairly modest gold projects and getting some fairly significant share price response. This has been the theme for the last month.
“So it is getting harder to find undervalued gold plays, with a lot of the stocks we’ve been recommending in the last couple of months … having significant runs.”
Le Page pointed to Moho Resources (ASX:MOH), one of his previous ‘hot stocks to watch’, as still undervalued.
Moho is currently trading at 10.5c giving it a market cap of just $6m.
“There are a few like Moho, which on the gold front are yet to have their day,” he said.
“That’s probably one of the few very undervalued ones, and obviously Tribune (ASX:TBR) with its resource upgrade coming out this month.”
Money flows back to West African gold
Another noteworthy event in the past week has been the increase in interest in West African gold.
“On the gold front, one of the quite significant moves was the flow of funds back into West Africa, which has been very quiet,” Le Page said.
“Obviously with the Aussie dollar being low there’s been very little exploration, but we’re seeing a lot of activity back in Côte d’Ivoire with Mako Gold (ASX:MKG).”
Graphex Mining (ASX:GPX) also recently announced it was earning up to an 80 per cent stake in two gold exploration projects in Mali.
“That was a graphite developer in Tanzania and is now acquiring a suite of Mali gold projects,” Le Page said.
“So that’s the next wave of offshore exploration obviously following on from some big acquisitions in Canada by Evolution and Northern Star (ASX:NST).”
So with the low-cost junior gold picks getting much harder to come by, where is Le Page turning his attention?
Why base metals of course.
“I’m starting to look at the next phase of the mining boom as it rolls into next year and some anticipated recovery in global markets,” Le Page explained.
“That would naturally lead you to look at the base metals as a bit of a leading indicator for any sort of global economic recovery.
“If you look at the returns year-to-date, cobalt has been the worst performer at about 13 per cent through to tin down about 2.5 per cent, and with gold up sort of 17-18 per cent.
“So I can see a bit of a lift in base metals, in particular copper and nickel. We’re starting to see copper projections increasing on the back of the lows we saw in March.”
There is significant supply disruption for both copper and nickel.
“Obviously the declining production through the Philippines is the biggest supply-side issue for nickel that we can see in the short-term,” Le Page said.
“The hardest thing about these two commodities is there are very few standout players on the ASX. Once you get out of IGO (ASX:IGO), Sandfire (ASX:SFR) and some of the other mid-tier players, there’s very, very few interesting copper and nickel players.”
Hot stocks to watch
There is one nickel hopeful though that Le Page has a close eye on: Blackstone Minerals (ASX:BSX).
Blackstone revealed this week that its Ban Chang prospect in Vietnam was proving to be much bigger than it thought.
The second of four holes drilled so far at the prospect returned a hit of 9.8m grading 1.45 per cent nickel, 0.9 per cent copper, 0.08 per cent cobalt with platinum group element (PGE) credits from a depth of 57.05m.
It included a higher-grade interval of 1.85m at 3.59 per cent nickel, 1.18 per cent copper and 0.2 per cent cobalt.
That second hole sits over 1km along strike from the first hole.
“[Blackstone] picked up the Ta Khoa project, which is a nickel-copper-PGE project about 160km west of Hanoi in Vietnam, about 18 months ago and that’s a former mine,” Le Page said.
“They’re starting to get some very impressive results. They have extended the strike length by a further 1km on that reconnaissance program. It’s pretty near surface and pretty decent grades.
“That’s the first four holes they put into this over a 1.2km-long strike length. So that I think is a very significant result.”
Blackstone is trading at 21.5c, giving it a market cap of around $54m. The recent exploration success sent the stock up from around 18c to a high of 24c — a new 52-week high — on Thursday.
Pivoting back to undervalued gold stocks, Le Page offered up Victory Mines (ASX:VIC) as one of his picks for the week.
Victory has reached a deal to earn up to an 80 per cent interest in the past producing Coogee gold mine near Kambalda, Western Australia.
The mine currently contains a resource of 96,000 tonnes grading 3.4 grams per tonne (g/t) gold.
Victory says the project hosts advanced exploration targets with excellent potential along strike and at depth.
“It’s a fairly modest resource of about 100,000 tonnes at 3.5g/t for 10,000oz but a lot of new targets,” Le Page noted.
“As we’ve seen with a lot of old mines, like Venus and Spectrum Metals — obviously taken over by Ramelius, that seems to be the trend of acquiring old gold projects and drilling at depth and along strike and that’s proven pretty successful.
“It’s early days but Ramelius had actually mined this Coogee lease back in 2013, pulled about 20,000oz at 4.7 grams out. So that should generate some interest.”
Victory has an enterprise value (market cap + debt – cash) of under $3m, Le Page says.
The company is trading at a tiny 0.1c with a market cap of just over $6m.
At RM Corporate Finance, Guy Le Page is involved in a range of corporate initiatives from mergers and acquisitions, initial public offerings to valuations, consulting and corporate advisory roles.
He was head of research at Morgan Stockbroking Limited (Perth) prior to joining Tolhurst Noall as a Corporate Advisor in July 1998. Prior to entering the stockbroking industry, he spent 10 years as an exploration and mining geologist in Australia, Canada and the United States.
