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Guy on Rocks: Gold, gold and still more gold, but wait… what happened to aluminium?
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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
Fiscal stimulus is still having a positive impact on gold prices.
Around $US13 trillion ($20.1 trillion) worth of gold purchases have been made by the G4 central banks, according to Le Page.
The G4 central banks are the Bank of England, the Bank of Japan, the US Federal Reserve and the European Central Bank.
“As long as this money printing continues, I think that’s going to underpin gold and it’s set to go higher,” he told Stockhead.
The gold price climbed back up to over $US1720, or over $2650 in Aussie dollars, an ounce this week.
Le Page says with reporting season upon us, we are now going to get a better indicator of the real impact of the pandemic and the government responses on the broader economy.
One of the pain points in resources this past week has been the decline in the aluminium price and “the forward price going into backwardation”.
“I think if there’s any pain in the resources sector it’s probably on the aluminium side, with a forecast surplus this year of about 2.7 million tonnes,” Le Page explained.
“That will probably peak in the third quarter of this year. That’s having a fairly big impact. Imports into the US were down about 45 per cent.”
Hot stocks to watch
On Le Page’s watchlist this week are gold explorer Exore Resources (ASX:EXR) and gold-copper explorer Challenger Exploration (ASX:CEL).
Exore has an enterprise value (EV) of about $12m and cash in the bank of $13m, with a market cap of just under $30m.
The company has 2000sqkm of gold ground in West Africa’s Côte d’Ivoire.
Le Page says Exore’s Bagoe, Liberty and Tengrela projects are in good company, surrounded by world-class mines like Barrick Gold’s 4.2-million-ounce Tongon mine, Resolute Mining’s (ASX:RSG) 8.3-million-ounce Syama mine and Perseus Mining’s (ASX:PRU) Sissingue mine.
“They’re in the right area. But what’s impressive is the high-grade hits they’re getting,” he noted.
Exore has reported intercepts of 12m at 5 grams per tonne (g/t) from 83m, 9m at 6g/t from 100m and 6m at 3g/t from 16m.
“It’s pointing towards a near-surface oxide resource, which they’re hoping to have out in the next two to three months, which I expect to be fairly substantial,” Le Page said.
“I think that’s certainly one to watch and one of the better players in the junior space.”
Meanwhile, Challenger has an EV of just over $45m and about $6m in cash, with a market cap of just over $60m.
Le Page says Challenger has a very capable board that has had past success.
Non-executive chairman Fletcher Quinn “has been around a long time, had a lot of success with Citadel in the Middle East back about 10 years”, he explained.
CEO and managing director Kris Knauer, was also involved with Citadel, which became a billion-dollar company.
Challenger’s portfolio includes the Hualilan gold project in Argentina and the El Guayabo copper-gold project in Ecuador.
Le Page said the Hualilan project had been in dispute for about 15 years and had only “some drilling” between the 1970s and 2006. But now under Challenger’s ownership, drilling has kicked off again and the company is “getting some spectacular results”.
It’s also surrounded by major porphyry deposits including the 17-million-ounce Cangrejos mine and the 11-million-ounce Gaby/Papa Grande mine.
Hualilan currently hosts a 600,000oz at 13.7g/t resource, but Le Page envisages that could grow to over a million ounces easily in the next few months.
“It’s got a just over 7000m drill program underway at the moment, but what I think is really interesting is it’s completely open along strike, down dip,” he said.
“This resource only covers about 20 per cent of the whole tenement, so 80 per cent of it remains unexplored. The resource that they’ve got is within 150m of surface.
“I think there’s a very good chance that resource will go to a million ounces this calendar year, probably higher.”
Challenger was trading above 20c prior to the market crash, but Le Page doesn’t think it will be too long before it is back up there.
“I think we’ll see it back there fairly soon. I think a target of 40/50c on the stock this year is not unreasonable, with a management team that’s done it before and been very successful at it.”
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.
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.
