Guy on Rocks: Gold M&A is heating up. Could this 1Moz junior be in the crosshairs?
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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”.
Gold (figure 1) was the big loser last week, down 1.8% despite a late rally lifting the yellow metal from around US$1,960/oz to close the week at US$1,977. Silver lost 14 cents to finish the week at US$23.80/oz while palladium was up US$9 to US$1,489/oz and platinum rose US$12 to US$1,064/oz.
The late rally in gold was spurred on by Powell’s speech at the Fed conference in Washington DC on Friday (19 May 2023) that clarified the upcoming intention of the Federal Reserve’s monetary policy which is now hinting at a pause in June.
Market sentiment, as measured by CME’s FedWatch tool (figure 2), changed significantly, predicting a 64.4% probability that the FED would pause rate hikes in June last Thursday (18 May ) to an 81.4% probability on Friday that the Fed will pause rates in June.
Gold futures firmed following this speech after three days of weakness and as of 5:55pm EDT June on Friday 19 May 2023 delivery gold futures were fixed at $1979.90/oz for a $20.10/oz or 1.03% gain for the day.
Powell believes that interest rates are now at a point that was sufficient to reduce borrowing, spending and contract economic growth. The real problem is that there is an urgent need to rein in government spending if the Fed is serious about taming inflation.
The USD dollar index closed at 103.2, its highest for two months despite losing 30 basis points following Powell’s Washington DC speech. US 10-yr Treasuries finished at 3.7% up 31 basis points on the week.
M&A activity in the gold space has been hotting up with Newmont Corp securing a $28 billion deal to buy locally listed Newcrest Mining which will consolidate its position as the world’s biggest bullion producer with mines across the Americas, Africa, Australia and Papua New Guinea. The transaction awaits regulatory approval.
Locally, the fight for St Barbara Mines (ASX: SBM) is now over despite Silver Lake Resources (ASX: SLR) increasing the cash component by $44 million (to $370 million) to match the bid by Genesis Minerals (ASX: GMD). St Barbara board has determined not to engage further with Silver Lake, with the sale of the Leonora assets to Genesis on track for 30 June.
Copper closed the week down 3c down to US$3.71/lb extending a five-week losing streak, however July delivery futures remain in a 1 cent contango (figure 3).
Anaemic economic news out of China has continued to weigh on copper prices with industrial production rising by an annualised 5.6% annually in April, significantly below market expectations of 10.9%.
Chinese property investment declined by around 16% with further declines in new home construction. Copper imports to China were also down around 12% compared to the corresponding period in 2022. Copper inventories, however, at the Shanghai Futures Exchange dropped to just under 135,000 tonnes to set a new low for CY 2023. Furthermore, copper inventories at the LME fell to under 60,000 tonnes, its lowest level since 2005 (figure 4).
Not surprisingly, consumer confidence in China remains well below 100, a level not seen since the pre-pandemic days.
Oil rallied on better-than-expected demand, up 2% to US$71.77/bbl. Oil production in the US remains flat at 12.2m BOPD. In a surprising move however, the Biden government approved the Mountain Valley gas pipeline in the Appalachian – relief bill.
Uranium continues to move up steadily mid May last year around US$54/lb, up 1.2% to close the week at US$53.88/lb. The majority of US in situ leach projects however require somewhere north of US$65/lb to justify switching back on. As mentioned the other week, given the emergence of more physical trusts along the lines of the Sprott Physical Uranium Trust, expect further upwards pressure on the uranium spot price.
I first highlighted Alto Metals (ASX:AME) at the beginning of 2022 and since then the company has continued to deliver some excellent results while at the same time being caught in the down draft of a selloff in risk assets.
AME controls over 700km2 of highly prospective ground in the Sandstone Greenstone region of Western Australia (figure 7), a region which boasts approximately 1.3Moz of historic gold production.
The company is currently exploring a 20km structure and recently published a Mineral Resource Estimate of 23.5Mt @ 1.4g/t gold for a total of just over 1Moz of gold. This also includes 17.6Mt @ 1.5g/t gold for 832Koz of gold using a $2,500 gold price for the pit shell design (table 1). Over half of this resource is oxide and there are number of treatment options within 100km (figure 7).
The Sandstone tenement package appears vastly underexplored with most of the drilling concentrated within the top 100m. With an active diamond drilling program and an RC program due to commence shortly I believe there are some quick ounces to be added at a number of key prospects, most notably Indomitable (figure 9).
Those with a knowledge of history (figure 8) would recognise some famous ships of His Majesty’s fleet and of course Lord Nelson (or The Right Honourable The Viscount Nelson, KB for any of you great unwashed who have made it this far), one of my favourite Admirals from the early 19th Century.
Apparently the depth extensions to the Indomitable (figure 9) are soon to be named (according to a confidential source at AME) the “Emma Hamilton Deeps” after Nelson’s mistress. A fine choice and hopefully just as productive.
At an Enterprise Value of just over $30 million at 5.9 cents/share and a growing resource inventory with potential processing options, not to mention plenty of historical (and probably current) takeover interest, I think this is a great medium-term gold play in a low risk jurisdiction.
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.