• Gold has moved back over $1,900 an ounce, with Joe Biden favoured to win the US election
  • ASX gold stocks are likely to get a boost from the recent price moves
  • A number of other resources plays in iron ore and nickel are on the Guy on Rocks radar

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

As forecast a couple of weeks ago, I thought Joe Biden would win and it appears that way.

However, that doesn’t necessarily mean Donald Trump is going to vacate the White House. We’re seeing some protests at the moment, but I think that could escalate potentially over the next few weeks.

There’s been a bit of an uptick in gold, which has again punched through $US1,900 ($2,651).

The Republicans are viewed by the business community as being business friendly, whereas the Democrats love spending money. I think the fiscal stimulus and the spending will probably increase, which will put a lot of pressure on the US dollar and probably continue to drive up gold.

While everyone is focused on the election, COVID-19 has just gone out of control and I think that’s going to have serious implications next year.

While we’re not feeling it in Australia, I think other parts of the world are going to feel it. You’ll probably see Asia continue because they’re not as fussed about the virus as North America and Europe.

We saw the Reserve Bank reduce the target rate back to 0.1 per cent, so I think the stars are aligning for gold again.

We saw a bit of a pullback in the valuations of gold companies, but I think that’ll get another lift from an increase in the gold price. The second stimulus wave will be coupled with an increase in debt and more stimulus.

On the iron ore front, we’ve seen an increase in Chinese stockpiling and that’s a trend that’s continued over the last four weeks. Stockpiles at the nation’s 45 ports have climbed by another 3.5 million tonnes to about 128 million tonnes, marking a 0.9 per cent rise.

We’ve seen the iron ore price come off to $US117. I think the view is that there’s probably going to be support between $US100 and $US115 a tonne. So that bodes well for the majors and some of the juniors looking to get into production.

Hot stocks to watch

One iron ore junior that’s poked its head up — it hasn’t been well promoted or marketed, but is along the same theme as Fenix Resources (ASX:FRX) — is Strike Resources (ASX:SRK).

The company recently completed a feasibility study for its Paulsens East iron ore project in Western Australia that showed some pretty good numbers.

The project is only small — a four-year mine life, producing 1.5 million tonnes per annum or 6 million tonnes for the life of mine. About 75 per cent is direct shipping ore (DSO) or lump, about 62 per cent iron which attracts a bit of a premium.

It’s pretty low-risk, conventional open pit, mining, crush and screen and direct transport to Port Hedland.

Strike was sitting up around 14c back in September, it recently hit a low of around 8.7c and closed at 9c on Thursday. The stock has a pretty low market cap of around $18m, so I think that’s interesting.

Strike Resources (ASX:SRK) share price chart:

On a comparison basis, it has a pretty similar valuation on a per tonne basis to Fenix and an equally attractive set of numbers. There’s just not a lot of recognition of junior iron ore miners.

The other new one that I would like to highlight that I’ve been following for a long time, has promised a lot and is delivering some good results but I feel has been a bit overvalued, is St George Mining (ASX:SGQ).

The company has done exactly what it said it was going to do. St George was a float primarily on the gold assets, but very quickly focused on its nickel and has had some pretty good results.

St George has so far defined a 6km strike length hosting multiple high-grade deposits all the way from the Bullets prospect through to the West End prospect at its Mt Alexander project in WA.

It is high-grade, narrow vein, pretty constrained mineralisation but as executive chairman John Prineas pointed out in his recent presentation, there hasn’t been a lot of drilling below 200m.

St George is just starting to see some conductors in that 300m to 500m zone under the Cathedrals prospect and around 500m below the Investigators prospect.

The company is drilling some deeper electromagnetic (EM) targets at the moment and returned a result of up to 49,000 Siemens, which St George says is consistent with a massive sulphide source.

They’re quite deep and difficult targets, but there is a view that some of these shallower deposits could plunge to significant depth. Even if St George finds something that deep, there’s a reasonable chance of being able to follow it up close to the surface.

The stock has a market cap of around $68m. It’s come off a bit recently, it was sitting up around 15/16c but closed Thursday at 13.5c.

St George Mining (ASX:SGQ) share price chart:

I think that’s one to watch. I wouldn’t say it’s necessarily cheap, but with nickel looking to have a bit of a run in the next couple of years and when you look at the returns from nickel equities over the last 12 months, they’ve been pretty poor.

Panoramic Resources (ASX:PAN) is down 60 per cent, Western Areas (ASX:WSA) is off 35 per cent — obviously both of those have had operational issues – IGO Limited (ASX:IGO) is off 25 per cent and Norilsk, the largest producer in the world, is off 10 per cent.

I think that sector has had a bit of a rough time.

Estrella Resources (ASX:ESR) has delivered a pretty impressive set of results from its Carr Boyd nickel project.

There’s been a lot of interest in the stock — it ran up to 19/20c. It’s back at 11c, but I thought it was a pretty good set of results — 2.5m at 3.7 per cent nickel, 0.5 per cent copper and 0.2 per cent cobalt.

There are two rigs turning up on site and it looks like they’re going to accelerate that program.

The only negative I’d say is there’s just under 500 million options that are in the money creating a bit of an overhang in the market.

Fully diluted it has a market cap of around $130/140m. It’s not cheap, but there aren’t many places to play in the nickel space at the moment. I wouldn’t say it’s necessarily a screaming buy yet, but I think it’s one to keep a very close eye on particularly if it can follow up some of those results.

Estrella Resources (ASX:ESR) share price chart:

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.