Guy on Rocks: WA is entering a ‘golden period’ thanks to gold, iron ore strength
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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”.
Global markets dived this week following comments by US Federal Reserve chairman Jerome Powell that the economic recovery will take longer than expected and Prime Minister Scott Morrison’s firm resolve that he won’t extend the JobKeeper and JobSeeker programs past their original deadline.
“There’s been a lot of press about the Australian economy hitting the wall in September with the JobKeeper/JobSeeker coming off, and at the same time we’ve got 1.5 million new unemployed in the US, which has obviously spooked the market,” Guy Le Page told Stockhead.
“But we’ve seen gold hold up after dipping under $US1700.
“So, with zero interest rates and lack of confidence and the Australian dollar coming off, that’s the perfect storm for gold and a lot of these Australian-based gold miners.”
Le Page said iron ore had also held up extremely well on the back of supply-side pressure.
The steelmaking commodity is still holding strong above $US100 ($146) a tonne.
Though longer term, there could be some displacement of Australian iron ore with this week’s announcement that the development of the 2.5-billion-tonne Simandou mine in Guinea would be going ahead.
Guinea struck a deal on Tuesday with the SMB Winning consortium that will include the construction of a 650km railway and deep seawater port.
The mine, which sits about 500km inland from Guinea’s capital of Conakry, is expected to generate $15bn over a 25-year period if it successfully gets off the ground.
“I think some big news which is not going to have an effect short term but probably in the longer term was the announcement on Simandou,” Le Page said.
“If we’re looking for competition for Australian iron ore that’s where it’s coming from.”
However, the once Rio Tinto-owned mine has a chequered past and the infrastructure requirements to get the ore on a ship are hefty.
“Obviously they’ve got to build a 650km railway through mountainous regions and a deep seawater port, but that’s been sort of 15 years in the making after numerous scandals, investigations and a few convictions on bribery,” Le Page said.
The gold and iron ore rally has put Western Australia in particular in a good spot.
“We’re really coming into a pretty golden period for Western Australia on the back of the gold and iron ore strength,” Le Page said.
“As I said last week, I think we’re entering into a new phase. We’re seeing a lot of capital raisings and exploration expenditure increasing.”
Not surprisingly, Venture Minerals (ASX:VMS) is on Le Page’s list again this week, after revealing it had locked in a road access agreement for its small, but high-grade Riley iron ore mine in Tasmania.
The agreement gives the company a transport route from the mine to the Port of Burnie.
Venture said it meant the company now had a clear and rapid development pathway, allowing iron ore production to occur as early as next month.
The company also recently secured an offtake agreement with Prosperity Steel for the full two-year mine supply.
The direct shipping ore mine currently has a reserve of nearly 2 million tonnes, which Le Page said previously would have a “calcine grade of about 61 per cent”.
“We saw some very good (share trading) volume there and it looks like they’re on track for July/August for first shipment,” Le Page said.
“So I think we’ll see continued interest there.”
Another of Le Page’s picks for the week is gold junior Vango Mining (ASX:VAN), which is currently in a trading halt pending a capital raising.
Le Page believes the capital raising will most likely be done at a discount to the company’s 10c closing price on Wednesday.
“They’ve been an undervalued gold explorer for a while,” he said. “I think they ran up to well over 20c a few months ago and it came back pretty sharply.
“There were a few question marks on some converting notes and other debt in the company which seem to have been resolved.
“We’ve seen a new managing director come in, Andrew Stocks, who is a mining engineer with over 30 years’ experience and has had experience at the (Superior Gold-owned) Plutonic mine.”
Vango’s Marymia project is located to the northeast of Plutonic, one of WA’s most successful underground gold mines having produced about 5.5 million ounces.
Marymia hosts a resource of 1 million ounces at 3 grams per tonne (g/t) gold, which Le Page reckons can grow to 1.5 million ounces this year.
“The encouraging thing is they’ve got a combination of open pit and underground that they can bring online, but the geology is really a replication of what we saw at Plutonic,” he explained.
Le Page expects Vango will have enough cash to complete a scoping/feasibility study on a 500,000 to 750,000-tonne-per-annum plant by mid-to-late next year.
“I think that’s probably one of the more undervalued gold explorers transitioning into a development phase.
“Again, I think the reason for their discount has been the debt. There were some fairly positive management changes and cleaning up that debt on the balance sheet. With a cap of around $70m I think that’s pretty encouraging.”
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.