Guy on Rocks: Industry watchers are missing the key to iron ore’s strength
‘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”.
Of course, gold is still very much front and centre, but another commodity is slipping in under the radar.
“With China coming out of lockdown, construction and infrastructure is back on the rise,” Le Page told Stockhead.
“There was a 93 per cent increase in activity by the end of April. Blast furnaces are expected to reach full capacity by the end of May.
“So I think that, together with some record shipments out of Port Hedland, the short to medium term outlook for iron ore still looks strong.
“I know a lot of analysts are not bullish on iron ore, but I think they’ve underestimated the recovery in China.”
Now, back to gold.
Le Page said gold-backed exchange traded funds (ETFs) have hit record levels.
“Gold holdings of ETFs have gone over 3000 tonnes, which is an all-time high,” he said.
“To date this calendar year, the inflows have been about 420 tonnes, which is more than their total buying for the entire calendar year of last year.
“So I think that will put a floor on gold and probably force it higher in the short-term.”
Le Page has nominated Exore Resources (ASX:ERX) for a second week running, after the junior delivered on its promise of a meaningful maiden resource for its majority owned Bagoe gold project in northern Cote d’Ivoire.
On Monday Exore told the market it had defined a 530,000oz contained gold resource for the project across two prospects – Antoinette and Veronique.
Le Page flagged last week a resource was on the horizon and this week he said it “didn’t disappoint”.
“They’ve got a 2000sqkm land package which has hardly been touched,” he noted.
“Barrick’s producing mine is 40-50km away from Antoinette. So I think they’re fantastic value around 5-6c with discovery costs at about US$8 an ounce.
“I think they’ve got a very good chance of going to a million ounces in the next 12 months and I think beyond that 1.5-2 million is not out of the question.”
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.
The other interesting news this week that has caught the market’s attention is that Apollo Consolidated (ASX:AOP) has agreed to sell its minority 20 per cent stake in the Bagoe and Liberty projects for $7m cash to private Perth-based company Ibaera Capital Fund LP, which successfully launched a hostile takeover of Ghanaian gold explorer Azumah Mining (ASX:AZM) late last year.
Ibaera only invests in projects “that have already been technically and economically ‘discovered’ but remain ‘undervalued’ by an inefficient and lethargic market”, according to its website.
But the sale hinges on Exore not exercising its pre-emptive rights to match the offer.
This gives Exore the opportunity to fully acquire the two projects. The company’s shares pushed another 11.3 per cent higher on Friday to 5.9c.
“Exore, in conjunction with its advisers, will consider its position in respect to the pre-emptive right, which expires 4 June 2020, and make an ASX announcement at the appropriate time,” the company said on Friday.
Apollo sold 80 per cent of Liberty and Bagoe to Exore in 2018 in order to concentrate its efforts on the Lake Rebecca Gold Project, near Kalgoorlie in Western Australia.
Le Page’s other stock to watch this week is Auteco Minerals (ASX:AUT) – a ‘battery metals-turned-goldie’ success story.
The company’s share price rallied 194 per cent in April, making it a +430 per cent gain for Auteco since it dropped vanadium to buy a Canadian gold project in January this year.
Auteco is ”well-funded” to start exploring its Pickle Crow gold project in Canada after receiving firm commitments for $5.1m in a share placement at slight premium to the 10-day volume weighted average price.
The move to acquire the Pickle Crow gold project in Ontario, Canada was led by Steve Parsons, the same man who has overseen the successful advancement of the 2.2-million-ounce Bellevue gold project in Western Australia.
The Pickle Crow mine previously produced around 1.5 million ounces, but since its closed 50 years ago there has been “no real modern exploration”, Le Page says.
“They’ve got a bunch of walk up drill targets, they’ve got about 320km of landholding, good infrastructure, very good access and they’re planning on kicking off a fairly aggressive 5000m drilling program in the next couple of months.”
The mine is located in an area littered with big multi-million-ounce mines like Evolution Mining’s (ASX:EVN) 25-million-ounce Red Lake mine, Newmont’s 5.7-million-ounce Musselwhite mine and First Mining Gold’s 4.7-million-ounce Springpole mine.
“On the back of the success at Bellevue and some of the success the Australians are having in Canada, particularly these high-grade gold projects, I think this is going to get a lot of interest,” Le Page said.
“I think high-grade, underground gold mines are certainly getting a lot of investor attention.”
Auteco’s 5000m drill program will follow up previously reported high-grade hits like 13m at 43 grams per tonne (g/t) and 4m at 17g/t.
“I think you’d expect pretty good news flow for the second half of this year,” Le Page said.
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.