Guy on Rocks: Gold majors trading at a premium point to next phase of ‘resources boom’
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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”.
Continued tensions in the US and China markets has seen the gold price fluctuate this week.
Its rise has also been helped by the increased inflows into gold-backed exchange traded funds (ETFs), which have “now broken 100 million ounces”, Le Page explained.
But perhaps more interesting is the fact that the major gold producers are now trading at a premium.
“You’ve got Newcrest (ASX:NCM) trading at 1.7x, Northern Star (ASX:NST) at 1.2x, Evolution (ASX:EVN) at 2x and Saracen (ASX:SAR) at 1.2x, so that gives us a pretty good idea that we are in a gold boom,” Le Page explained.
And the rising exploration and mining activity generally, supported by the strong gold and iron ore prices, is seeing the industry enter another phase of the lifecycle.
“I get the feeling that with the amount of activity up generally that we’re at the start of another phase of the resources boom,” Le Page noted.
“We’ve continued to see a lot of strength in iron ore. Obviously the big news was the price tipping over $US100 ($143) a tonne and the continued supply-side problems for Vale with the virus has continued to underpin that.”
Unlike the previous iron ore price rally, this time around there is a bit of a shortage of stocks in the space.
One that has piqued Le Page’s attention is Venture Minerals (ASX:VMS), which “has been overlooked” and is “yet to fire a shot”.
“They’ve been promising a lot for a long time and have never quite got over the line on anything, but I think it looks like the stars are aligning,” Le Page noted.
“They’ve got a couple of really interesting projects, all looking to make an impression short-term.”
What makes Venture so intriguing, according to Le Page, is the potential for near-term cashflow from its small but high-grade Riley iron ore project in Tasmania.
“It’s only a fairly small deposit but it is direct shipping ore,” Le Page said.
“It’s about 2 million tonnes and it’s going to have a calcine grade of about 61 per cent. So not a big resource by any stretch, but I suppose the attraction of this is the ability to monetise it in a very short space of time.
“If we go to their last quarterly report and some of their recent announcements it looks like the end of this month/early next month they should have some financing and offtakes in place.”
Le Page estimates Venture’s capital and operating requirements will be quite low at around $9m-10m.
“Fairly low capital intensity, but I think this could deliver a very significant cashflow over the next 18-24 months,” he said.
“I think the next 30 days is going to be critical for the company. I think if we can see the road access agreement and offtake agreement in place — the infrastructure is already on site — we could see them in production very quickly.”
Venture also recently announced potential extensions to its Golden Grove North zinc-copper-gold project in Western Australia, which sits 10km north of the 40-million-tonne Golden Grove mine recently picked by EMR Capital for US$210m.
“That is returning rock chips of up to 24 per cent copper, 8 grams gold, 35 grams silver and 1 per cent zinc. They found copper sulphides at surface,” Le Page said.
“So I think VMS with a market cap of under $12m could have a stellar sort of six to 12 months ahead of it.”
Another of Le Page’s picks this week is Musgrave Minerals (ASX:MGV), which this week announced really high-grade hits, like 12m at 112.9 grams per tonne (g/t) gold 36m from surface, from its new ‘Starlight’ discovery, part of its flagship 613,000oz Cue gold project in WA’s Murchison district.
“With results like 48m at 4 grams, 7m at 14 grams, I think we could be on our way to a very high-grade resource,” Le Page said.
“I am fairly confident they are going to tip over 400,000-500,000oz soon at a very healthy grade. That is another one to watch.
“I think that is one of the better gold discoveries we’ve seen this year, second to De Grey Mining (ASX:DEG).”
Musgrave is nearing completion of a 7,000m drilling program.
“I think they’re going to have some more good results out there.
“A high-grade, near-surface gold play, market cap of about $50-60m, I think there’s plenty of room to move towards $1 in the next 12 months.”
Last week, Le Page flagged Ansila Energy (ASX:ANA) as a stock to watch and promised he would say more on the stock this week.
In the past couple of weeks Ansila has had a bit of a breakout, climbing from around 0.7c to as high as 2.1c. It has edged back a bit to 1.5c.
“We’re waiting for an update on the Hartshead bid,” Le Page said, reiterating his comments last week that the North Sea gas project “could have a very significant valuation of well over $50m”.
“There’s a bit of anticipation on the back of some disappointing results in Poland and a very sharp selldown.
“I think that mention of it last week has started to spark a bit of interest in it … that could send it well above 5c with their success on that bid.”
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.