Money Talks: Shaw and Partners’ Davide Bosio says the gold outlook is strong. Here are 3 ASX stocks to watch
Money Talks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.
Today we hear from Shaw and Partners WA state manager and director of corporate finance Davide Bosio.
Bosio says he has been actively watching the gold sector.
He believes there are strong fundamental reasons why investors may see strength in the gold market over the long term, although the price has been relatively stagnant over the last 12 months.
“Key drivers of gold are real interest rates (interest rates factoring in the effect of inflation) and although investors have concerns that we are entering into a period where rates will rise due to the growing levels of inflation, real rates are still negative,” Bosio said.
“We are also witnessing a period of government spending and stimulus that is unprecedented. The value of currencies are being eroded as spending and stimulus rely on endless money printing by central banks.
“Gold companies are also strong contenders for takeover activity, which may see valuations in the listed sector improve.”
It is becoming increasingly difficult for miners to unveil tier one quality deposits through conventional exploration, he added, so cashed up producers looking to expand resources and reserves “may take advantage of strong capital markets and cheap money to buy ounces [from juniors] at attractive valuations.”
While some punters have gained success through focusing on timing markets over the last few years, Bosio highlighted that real wealth is created over time.
“As Buffett famously said ‘timing the market versus time IN the market’ – the gold market has been impacted by the short term success of emerging green stocks, battery matels, and digital assets or cryptocurrency sectors,” he said.
“Some of these sectors have received significant investor interest with many having arguably stretched valuations.
“In contrast, gold has been almost ‘under the radar’ with many investors turning their backs on the precious metals, believing that gold has lost its position as a long-term store of wealth and a strong defensive asset.”
Alongside this thematic, Bosio said gold producers have been quietly building their cash coffers with many Australian and North American groups in particular enjoying very strong, sustainable margins – even at the current underlying gold price.
“Provided the current operating environment is sustainable, we will see a sector that has a number of large producers generating significant free cashflow, with minimal debt and an ability to aggressively pursue acquisitions or capital management initiatives such as share buybacks and/or high dividend payouts,” he said.
“The company has a strong focus on M&A, adding accretive assets such as the purchase of the remaining interest in Ernest Henry and conversely being prepared to divest assets that no longer suit the company’s growth profile,” Bosio said.
“EVN has sold four mature projects over the last few years whilst retaining an interest via royalties and contingent payments.
“It has demonstrated an ability to raise funds as and when required and retain conservative gearing of circa 30%.
“Key assets such as Ernest Henry Mine in QLD has significant resource upgrade potential as the orebody and resources continue at depth and remain open – given their intimate understanding of this operating mine, they may be able to extract significantly more ore with attractive operating expenses for much longer than the market currently has factored in.”
Ramelius Resources is a Western Australian gold producer that is fast evolving into a major Australian gold company.
“RMS continues to demonstrate cost discipline and is one of the few gold producers with a strong organic growth profile,” Bosio said.
“The company’s strategy is to explore or acquire resources in the vicinity of each production hub to maintain gold production of more than 100kozpa from each facility.
“Through October and November Ramelius made several bids to secure Apollo Consolidated, which has the Lake Rebecca development project, 150km east of Kalgoorlie.
“Ramelius has multiple ore bodies and operating mines and blends different ores through the two processing hubs.
“The benefit of this is that the company is not reliant on just one mine or mill, although it has meant that investors have had limited visibility on Ramelius’ medium term operating outlook.”
Black Cat Syndicate is a small cap located east of Kalgoorlie in the famous Bulong region.
BC8 has been steadily adding ounces (now more than 1.2mil JORC ounces) with a view to commencing development and ultimately production in 2022/2023.
Bosio says: “Given the company is capped at under $100mil, the management team led by highly experienced miners have maintained a focus on exploration and the addition of more ounces that can potentially be mined through their mill, which is close to being developed.
“The company have indicated that ongoing upgrades can be expected as a number of their deposits remain open along strike and at depth,” he said.
“Key considerations for investors are the location of the BC8 gold resources – proximity to a workforce in Kalgoorlie, sealed roads, power, and infrastructure cannot be underestimated when contemplating the transition from explorer to producer.”
Bosio said that seasoned mining veterans Paul Chapman and Les Davis – the founding directors of Silver Lake Resources (ASX:SLR), provide the mining experience alongside Gareth Solly, who has a strong operational background having worked previously at Carosue Dam for Saracen Minerals, now Northern Star (ASX:NST).