Can Joe Biden take gold even higher? Picture: Getty Images
Guy on Rocks: Biden for the win — all signs point to another gold price rise
Experts
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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 gold bulls will be happy, for all the indications seem to be pointing to yet another lift in the gold price.
One of the key drivers is obviously the US election results, which are pointing to a strong Biden outcome. It’s compelling on pretty much all of the polls, whether that’s true or not, but it certainly looks like Biden is going to get in.
I think the outcome of that will be a lot of fiscal stimulus, a lot of spending and I think that will continue to put pressure on the US dollar and be positive for gold.
Certainly, if you look at the gold valuations of the major miners at the moment, they were sitting around 1.3 times premiums and net asset value a few weeks ago, now that’s gone up to about 1.6 times.
So that would strongly suggest to me that the market is expecting a lift in gold. There are only a few possible outcomes — there’s either going to be a lift in gold and a fall in the Australian dollar, there’s going to be exploration success, or a correction is coming up. I would suggest the most likely outcome is a rise in the gold price.
On the EV demand side, which I think is going to be pretty interesting to watch over the next two years as we move into a stronger market for nickel and copper, Morgan Stanley projected a rise of electric vehicle penetration rights from 11.6 per cent up to 13.2 per cent by 2025 and from 26 per cent up to 31 per cent by 2030.
This is quite bullish for nickel obviously, and in particular nickel sulphide, which we’ve been talking about now for a few months.
We’ve seen Estrella Resources (ASX:ESR) and Blackstone Minerals (ASX:BSX), two of the three nickel companies that we previously mentioned, have spectacular rises.
There’s been a lot of talk about phasing out cobalt and using more nickel. Whether that actually happens or not is unknown because it’s not easy to substitute cobalt, but the real wild card in the metal market has always been cobalt and I think that will continue.
Although the exposure to cobalt is much more difficult to replicate than it is for nickel or copper.
The bottom line on the nickel front is it looks like nickel’s share of the EV market is going to rise from around 3 per cent this year to over 25 per cent by 2030. That’s a massive rise.
We’ve also seen big moves in nickel on the back of stainless-steel demand. So, this time when we enter a bull market, we’re going to have an increase in stainless steel use, which we’re seeing in China and the growth in EV demand, so that will be a double whammy.
That is also positive for lithium but there are a lot of suppliers out there, and it’s obviously bullish for copper. Even though copper is in oversupply at the moment, I think it will swing round pretty quickly.
Copper is likely to go from around 2.5 per cent to about 9.5 per cent by 2030. That space will get really interesting in the next couple of years.
The iron ore thematic still looks pretty solid. We’ve had a lot of sabre rattling from China, but I think it’s unlikely that they’ll touch iron ore.
The only threats I’ve mentioned before are the 2.5-billion-tonne Simandou mine coming into production or a strong recovery in Brazil. I think Simandou is five to seven years away and it’s unknown when Vale is going to get back on track in Brazil.
Movers and shakers
Venture Minerals (ASX:VMS), which I recommended before when it was around the 3c mark, is now up around 3.8c.
The company announced last Friday it had started a 2500m reverse circulation drilling program at Golden Grove North.
That’s near the Golden Grove mine and readers will be aware Tempest Minerals (ASX:TEM) is on the southern end of that Golden Grove extension.
Venture Minerals is looking for volcanogenic massive sulphides (VMS). The company has identified an immediate target below a 2008 hole which intersected VMS mineralisation. It hit around 22m at 0.8 grams per tonne (g/t) gold, 0.6 per cent copper and 1.3 per cent zinc from 38m to about 60m, so it’ll be following that up.
I would say there’s a pretty good chance Venture is going to replicate those grades at plus or minus 10 or 20 per cent. The company has another three EM targets to follow up along that Vulcan trend — Central, West and North. So I think all up that’s going to be interesting.
Hot stocks to watch
On the new company front, one that has had a pretty strong run up this year is Eagle Mountain Mining (ASX:EM2).
Eagle Mountain owns the Oracle Ridge project, which is an old high-grade copper mine that was put on care and maintenance. It has good infrastructure and is in a good jurisdiction in Arizona in the US.
The company is looking to put out a resource at the end of this year.
What’s interesting about the project is Eagle Mountain has found some very high-grade copper and bornite mineralisation along strike from the old mine.
There were some fantastic intersections the company was following up including 7.7m at 5.11 per cent copper and 7.6m at 4.63 per cent copper, with both these hits also returning around 0.7g/t gold and 40-50g/t silver.
Eagle Mountain was also picking up about 9 per cent copper, 190g/t silver and about 0.2g/t gold in the dumps.
The company is targeting a geophysical anomaly along strike and has about 3km of skarn hosted copper-gold-silver mineralisation, which sits underneath the intrusion that hosted the old Oracle Ridge mine, to follow up.
We’re not going to put out any projections on what we think they have, but it looks extremely interesting. The orientation of this body looks quite flat and it has easy access from the surface with possibly a decline.
Eagle Mountain has a market cap of around $60m but is coming into a good market for copper. Looking at how some of the other base metals plays have gone, even at 40c with a $60m cap it has plenty of room to move up.
So that’ll be one to watch in the next six months as it gets a resource out hopefully late this year.
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.
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.
