Guy on Rocks: Gold price retreat a good time to pick up some small cap bargains

Gold price retreats below $US1900/oz
Pullback in gold and iron ore stocks a bargain buying opportunity
ASX gold stocks guide: Here’s everything you need to know

‘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

If you hadn’t noticed, the gold price has retreated back below the $US1900 an oz mark. At the time of writing it was around $US1870, or $2647 for the Aussies.

“There’s plenty of volatility in the market and I hope readers took the opportunity to take a few profits in gold over the last three or four weeks or so as valuations got stretched and volumes increased,” Guy Le Page told Stockhead.

“Not surprisingly with the US dollar strengthening and a bit of uptick potentially in inflation, there’s been a fairly strong pullback in gold over a very short space of time.”

But don’t freak out just yet, Le Page reckons there’s still plenty more puff left in this ‘safe haven’ metal and the gold price will head north again.

“I think you might see some consolidation between $US1750 and $US1800 before another move, which is really what we saw in March of this year — that pull back and a fairly strong huge amount of buying from the ETFs,” Le Page said.

“I think over that period they added about 30 tonnes to their holdings.

“It’ll be interesting to see what the exchange traded funds do in this current downturn. That will be a new leading indicator maybe for us to look at now if we want to know where gold is going in the near term.”

And it’s time for investors to make the most of the gold price pullback, with some buying opportunities popping up, according to Le Page.

“A lot of the companies we’ve been talking about across the board have pulled back and probably represent reasonable buying around current levels,” he said.

And Le Page pointed to the likes of Cobre (ASX:CBE), De Grey Mining (ASX:DEG) and Caeneus Minerals (ASX:CAD), which have “cashed up in the last three months” and aren’t going to need to tap the market anytime soon.

“I think all of these companies are worth watching over the next 30 days and I think it’s going to be a good re-entry point,” he said.

Iron ore explorers seem to be in a similar boat, with the likes of Venture Minerals (ASX:VMS) and Fenix Resources (ASX:FEX) pulling back as iron ore prices backed off their six-and-a-half-year high this week.

“Some of the iron ore players … have come back a bit on talk of the iron ore price coming back even though it hasn’t really moved a lot,” Le Page said.

“So I think that’s another good re-entry point.”

There’s also delays to the ramp up of iron ore production in Brazil, with Vale’s tailings dam still posing a risk, according to Le Page.

“After two disasters in the last five years, that could be a lot longer process,” he said.

“There’s a lot of chatter about China having alternative iron ore sources, but they appear to be five to seven years away if they ever materialise.”

Movers and shakers

This week’s headlines were captured by yet another big discovery by Chalice Gold Mines (ASX:CHN) at its Julimar nickel-copper-platinum group elements (PGE) project.

The company found another three anomalies, including the 6.5km-long Hartog anomaly, at the Julimar project.

The news sent it on a 50 per cent run to a new 52-week high of $2.63. It has since edge back a bit but is still trading over $2.40.

Le Page said the discovery plus positive float tests from bulk metallurgical samples had given Chalice a “real shove”.

“I think their timing is good because not long after that news came out, we had our good friend Elon Musk at his Tesla Battery Day espousing the improvements they intend to make with their cathode production process,” he said.

“The move to nickel is interesting because 70 per cent of nickel consumption is really in stainless steel.

“If we see a big increase in nickel consumption in batteries that could really tighten the nickel market up very quickly.

“So if we see a bit of global growth and some delivery on that objective of Tesla that could make for a much tighter nickel market than is currently being projected.”

While nickel inventories are rising, Le Page says they are still at fairly low levels compared to the last five years when stockpiles were sitting at 200,000 to 250,000 tonnes.

“Obviously the problem on the junior end is there’s very few places to claim that space that aren’t fully priced,” he said.

“Blackstone Minerals (ASX:BSX) when we first called it under 10c was one of them, but that’s had a very strong run up over 40c.”

Hot stocks to watch

Le Page’s pick this week is graphite-turned-gold explorer Marvel Gold (ASX:MVL), which is the former Graphex Mining.

The company dropped graphite mining in problematic Tanzania in favour of gold exploration in southern Mali.

Marvel struck a deal in August with Oklo Resources (ASX:OKU) to pick up an 80 per cent interest in Oklo’s three projects in south Mali, which expanded its existing landholding in the region.

Previous drilling at the Tabakorole project defined a 600,000oz resource and recent aircore drilling has delivered high-grade gold hits of 6m at 6.2 grams per tonne (g/t), including 3m at 11g/t, from 14m.

Another of Marvel’s projects, the 24sqkm Lakanfla, sits just 6km from the 13.5 million oz Sadiola mine.

The projects are located on the Bannifin shear zone, which looks analogous to the 7 million oz Morila mine, Le Page says.

“It seems to have the right geology around it. There’s a historical resource that was published that’s going to be upgraded — about 10 million tonnes at just over a gram for about 350,000oz.

“But I’m pretty sure they’ll be able to improve on that with the next few rounds of drilling.”

“Not cheap at an EV (enterprise value) of about $17m but historically speaking in this market they probably are. So yet another West African gold story that’s getting a run in this gold market.

“I think that’ll be one to watch as you see the gold price recover, hopefully in the next 60 days.”

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.