Money Talks: Here's 3 gold and silver stocks worth a closer look

Money Talks is Stockhead’s regular drill down into the sectors and companies that investors have their eye on right now.

Today, we hear from Simon Popple of UK-based Brookville Capital.

What’s hot right now?

Popple, who specialises in junior mining companies, appears to have the ‘golden touch’ when it comes to stock picking.

“On 26th September 2019 I told you about Silver Lake (ASX:SLR) (when the price was 94c), Chalice Gold (ASX:CHN) (22c) and Evolution Mining (ASX:EVN) ($4.62),” he says.

“The share prices are $1.93, $1.005 and $5.30 [respectively].

“Then on 26th November I [mentioned] Bellevue Gold (ASX:BGL) at 47c, Pantoro (ASX:PNR) at 14c and Gold Road (ASX:GOR) at $1.07.

“These have also had a good run with shares prices moving up to 88c, 21c and $1.45 respectively.”

Can Popple’s flawless run continue in 2020?

Top Picks

ST BARBARA (ASX:SBM)

Market Cap: $2.24bn

St Barbara have become a significant player in the global gold market following the acquisition of Atlantic Gold, Popple says.

“With a price tag of around $2bn and annual production of 385,000oz spanning two major producing countries (Australia and Canada) – there’s a lot to like,” he says.

“What particularly attracts me to this company is not only do they have a great pipeline of projects but they also pay a dividend.

“Following COVID-19, many companies have found it difficult to continue with their dividends, but gold and silver companies are better placed than many to keep paying them.

“Whilst it would be no surprise to me if a lot of this ‘new capital’ gravitates towards the larger gold companies – such as my next idea – I’m sure that some will find its way into the smaller producers. Which is the main reason I like this one.”

NEWCREST MINING (ASX:NCM)

Market Cap: $24.5bn

If you look at the marketing materials of many of the larger gold and silver companies, they make a big play about their dividends. Newcrest doesn’t – but they still pay one, Popple says.

“There’s a lot of other stuff going on – so I can see why they don’t ‘major’ on it,” he says.

“They’re not only a very low-cost producer but following the acquisition of the prepay and stream facilities and an offtake agreement in respect of Lundin Gold’s (TSX:LUN) Fruta del Norte mine for $US460m, they now have a nice new asset that should add to their cash pile.

“At a gold price of $US1,700 per ounce, it should be yielding over 11 per cent.

“Not only is this generating some decent cash, but given they’re one of the lowest cost producers in the market, if the gold price climbs, they should benefit from an expanding profit margin.

“In the last quarter (to 31st March 2020) they produced 519,000oz of gold at a whopping margin of $742 per ounce.

“Playing with the numbers that’s generating gross cashflow of $385m – in just one quarter!

“Not surprisingly they’re in a strong financial position with net debt/EBITDA of 0.8x and a gearing ratio of 15.1 per cent. So, they’re well positioned to pick up other miners should any opportunities present themselves.

“If the gold price keeps ticking up, they could have a very exciting future.”

SILVER MINES (ASX:SVL)

Market Cap: $103m

Silver Mines own the Bowdens project in New South Wales, which — with a mineral resource of 275 million ounces of silver equivalent — is one of the largest undeveloped silver projects in the world.

“To provide a bit of perspective, First Majestic – a major silver producer – have a measured and indicated resource of 268 million ounces of silver equivalent – but this is over seven properties,” Popple says.

“Although their three main properties have 227 million ounces, the fact that this 275 million ounces relates to just one project – Bowden – makes this project particularly attractive.

“They already have a feasibility study under their belts which indicates a mine life of 15.5 years and an operating margin of $US419m – albeit at a significantly higher silver price than we have today,” he says.

Initial capital costs are estimated to be $246m including mine development, processing plant, a tailings storage facility and power supply. However, the water situation is more complex, Popple says.

“Open pit dewatering and storm water harvesting are inadequate to meet the water requirements of the project,” he says.

“Along with environmental considerations, they have decided that water for initial plant start-up and ongoing volumes will be supplied from external sources via a pipeline from the Ulan coalfields.

“It’s unclear what the cost of this is going to be. A map would suggest this is about 50km away. This is not a huge distance as far as transporting water is concerned (Regis Resources (ASX:RRL) are planning an 80km pipeline for one of their projects).

“But they clearly don’t have a large water resource on their doorstep – something we need to bear in mind.

“Having said that, if the silver price takes off, there could well be investors clamouring to get involved – especially as there’s also some decent exploration potential.”

After completing his MBA at Birmingham University in 1993, Simon joined the corporate finance team at Singer & Friedlander working on small and mid-cap mergers and acquisitions. In 1997, he joined the senior banker team at ABN AMRO before moving into their corporate finance department in 1999, where he specialised in private equity. He then became head of investment management at Strutt & Parker’s Real Estate Financial Services before becoming a director of Topland, one of Europe’s largest private investment companies.

In 2008, he set up Brookville Capital, a capital-raising business which subsequently won mandates with, amongst others, Bunge, the Bank of China (Suisse) and Fleming Family & Partners. He now writes the Brookville Capital Intelligence Report which covers gold and silver mining stocks.