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Guy on Rocks: This Ecuador-focused gold play is due a rerate
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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”.
Market ructions
The resources market is starting to look very reminiscent of the former mining boom that was in “full swing” by 2007, according to Guy Le Page.
The numbers are starting to roll in and they’re looking pretty solid.
“We’re starting to see some hard numbers on our booming economy and that is that the resources and energy sector posted a record $293bn this financial year despite the coronavirus,” Le Page says.
Iron ore accounted for $100bn, while gold contributed just under $28bn — a number which is expected to climb to $32bn next financial year. LNG dropped in a solid $48bn.
“I think that, together with the surging gold price, has arced up the [WA] separatists again — all those who are considering leaving the federation,” Le Page says.
“If there’s any indication we’re in a mining boom, that would be one of them.
“As this mining boom rolls on those rumbles will continue, despite the prospect of separating from the federation being remote.”
Gold-backed exchange traded funds (ETFs) also saw record inflows in the first half of 2020, with 734 tonnes added – more than any previous full year.
Le Page says the valuations of the major miners are “holding up” and the valuations of the juniors are continuing to head north.
“Not surprisingly the resources sector has outperformed the broader market by 27 per cent in the last three years,” he says. “And as we pointed out earlier resources is taking up a large percentage of the index.
“It reminds me a bit of 2007 when the last mining boom was in full swing.”
Hot stocks to watch
South American-focused gold stocks are in fashion, with Titan Minerals (ASX:TTM) the focal point this week.
Titan has two projects in Ecuador – Dynasty, its flagship project, and Copper Duke.
The $144m market cap explorer announced some key appointments this week, including Freddy Villao to the role of vice president of government affairs in Ecuador.
“Ecuador has been a hot destination for the last couple of years, a lot of exploration activity,” Le Page says.
The Dynasty project has a 2.1-million-ounce non-JORC resource that Titan is working to elevate to JORC-compliant status (a must-have for ASX-listed junior explorers).
“It covers 140sqkm across five concessions,” Le Page explains. “Three of them are permitted for exploration and small-scale mining.
“There’s a 9x1km long mineralised structure. They’ve got assays pending for about 5,000m of diamond drilling that was undertaken late last year.
“Within the top 100m they’ve had about 95 per cent of the drill holes come back with gold mineralisation.”
Titan is planning to drill a further 6,000m with the aim of delivering a JORC resource in the fourth quarter of this year.
“They’ve got about $12m in cash, a market cap post the recent placement of about $140m, but very significant gold grades,” Le Page says.
“There’s a lot of discussion around town about what they’re doing – 2 million ounces at 4.5 grams is a seriously high-grade resource. That puts them right up in the top quartile of grade tonnage in the world.”
Titan Minerals Limited (ASX:TTM) share price chart:
Le Page believes that Titan can not only turn the 2.1 million ounces into a JORC resource but there’s a very good chance the company will expand it.
“I think that’s potentially a world class gold play in a part of the world that was a little bit out of favour but has come back in a big way,” he says.
“And probably of any of the jurisdictions around the world that have come into favour, this is probably the most prospective.
“I think with some more modern exploration, more sort of comprehensive exploration technology, I think they’ll get a very large resource that will sort of re-rate this company.
“If you look at average valuations well over $70-80 an ounce, you could easily see a market cap on this of well over $250m within the next six to 12 months from $150m. And that’s just on Dynasty.”
On the money
Looking back on some of Le Page’s previous hot stocks to watch, we can see they’ve made further gains on promising advancements.
Also a South America-focused gold explorer, Challenger Exploration (ASX:CEL) was trading around 14c when Le Page first mentioned the company at the start of May.
The company, which slid as low as 7c during the pandemic sell-off in March, has climbed higher to 23c.
Challenger Exploration Limited (ASX:CEL) share price chart:
Challenger’s portfolio includes the Hualilan gold project in Argentina and the El Guayabo copper-gold project in Ecuador.
Le Page says Challenger has been drilling its Hualilan project for a while now, “but what’s significant is between the two main mineralised zones they’ve got about a kilometre of larger, low-grade material that is not something that has been recognised previously”.
“They’re pulling intercepts of sort of 30/40m at just under 2 grams,” he says.
“So that opens the door up for a larger tonnage, lower-grade operation in addition to the high-grade gold mineralisation that they’ve outlined at the various prospects.
“I think that’s quite an exciting new development there and obviously there’s been a bit of activity on the market.”
Another company trading higher than when Le Page first spoke about it is American Pacific Borates (ASX:ABR), which is now up at around 56c.
When Le Page first mentioned American Pacific in mid-April, it was trading around 26c.
American Pacific Borates Limited (ASX:ABR) share price chart:
“They put away a large placement of about $30m a few weeks ago,” Le Page says.
“They are trying to fast track the development of the Fort Cady borate project. The first stage NPV [net present value] is about $US224m.
(NPV is a measure of the project’s profitability).
“I think they will be able to fund most of the capital requirements through offtake or another debt financing. Just on the first stage that has [share price] upside to well over $1.
“Just on the financial metrics the fact that they’ve got that permitting sorted out and are in the construction phase, I think there’s a lot of confidence that’s actually going to proceed to production now.
“That’s still pre-production but I think still pretty good value under $1 and valuations well in excess of $5 in full production on stage two and three.”
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.
