Selloff in ASX gold stocks ‘a buying opportunity’, these experts say. Here are 5 stocks on the radar
MoneyTalks is Stockhead’s regular recap of the ASX stocks, sectors and trends that fund managers and analysts are looking at right now. Today, we hear from Peak Asset Management founder and executive director Niv Dagan, and Shaw and Partners WA state manager Davide Bosio.
Gold was hammered last week, but the ensuing selloff in ASX gold stocks currently presents a buying opportunity, says Dagan.
“Short term, it appears that inflation globally has now peaked, and the market has already priced in seven interest rate hikes in the US,” he says.
“We feel that interest rates will rise, but at a slower pace and that this selloff in equities presents an opportunity.
“In relation to the gold market, what we are seeing is only the producers or those that are close to production and moving towards cash-flow positive, are benefiting from the higher gold price.”
When producers have lots of cash, they look to replenish ounces, Bosio says.
“The big guys will be looking to use their strong balance sheets to continue to fund exploration development or alternatively, they will look down the curve to where their next meaningful ounces going to come from,” he said.
“They will look to continue to acquire the junior explorers and developers that have had some success, because historically, it is cheaper to acquire ounces than to buy them yourself – especially when you’re a major.”
Tier 1 deposits are very difficult to find. Bosio points to the likes of Ramelius Resources (ASX:RMS) who’ve grown into a $1.5 billion dollar company on the back of buying some good production assets and continuing to replenish their ounces.
“Another example would be Gold Road Resources (ASX:GOR) entering into an acquisition of DGO Gold (ASX:DGO) and the reason for that, many believe, is the fact that DGO Gold is a 14% shareholder of De Grey (ASX:DEG),” he says.
“De Grey is still an explorer, moving into development phase, but they’re more than likely going to have a +10Moz deposit in the Pilbara which is going to be a significant asset for a major.”
In terms of potential takeover targets, Bosio says look for companies with proven resources and reserves.
“Grade is always key,” he said. “For investors looking for potential takeover targets, you don’t just want the hot new thing with exciting exploration ground; you want proven resources, strong balance sheet, or access to cash, and directors that have got a track record of success.”
“Majors are looking for quality ounces that they can exploit quickly, they can put it through their mill and get into production quickly. They love this gold price, they love these margins, they love the fact that they can basically produce an ounce for $1,000 and sell it for $1,500.”
Bosio says he remains very, very bullish long term on gold because it’s the resilient asset class – particularly in times of high inflation and geopolitical turmoil.
“If you look at the macro picture there’s a lot of those factors present at the moment, and I feel that the underlying key demand for the metal continues to be very, very strong,” he says.
“When I started in the industry over 20 years ago gold was US$250-$300 an ounce, and over that period — although we haven’t seen sustained periods of long term euphoria – there has still been a very significant increase in the underlying price of gold.”
Bosio says gold producers haven’t experienced the same euphoria as battery metals players, despite sitting on a lot of cash, low debt, and having significant operating margins.
“We saw almost a $100 drop in the gold price last weekend, but the producers are still making terrific margins even at the current prices. They’ve got a lot of room for error,” he said.
Despite costs increasing in the March quarter, Australia’s second biggest gold miner unveiled a solid profit and “a very strong cash position”, Dagan says.
It had $433m in the bank at the end of the quarter.
A series of increasingly ambitious acquisitions, topped off by a $16bn merger with Saracen to consolidate Kalgoorlie’s Golden Mile, will see 1.6Mozpa NST hit 2Mozpa by 2026.
That would give NST the heft to compete for size with Newcrest Mining (ASX:NCM), which has for years held the mantle of the biggest gold miner Down Under.
ALK produced 56,958oz of gold in FY21 from its Tomingley operations in NSW at an AISC of just $1,320/oz – solid margins at the current price of ~$2,650/oz.
For FY22, it expects more of the same.
Bell Potter recently increased its price target on Alkane, Dagan says.
“The company is currently in the process of securing approvals from the New South Wales government to develop the Roswell and San Antonio deposits [at Tomingley],” he says.
“Feasibility plans that include both open cut and underground mines at the two deposits are expected to be finalised in the coming quarter once the San Antonio indicated resource is completed.”
As a bonus, the company has the potential company-making porphyry discovery at Boda, where it is in the final stages of prepping a maiden resource.
BCN’s Jaurdi project near Kalgoorlie produced its first tonne of gold in December 2020.
“A strong performance allowed the company to pay off its debts in October [last year], leaving it debt-free,” Dagan says.
In the March quarter, 6,104oz was sold at an average sale price of $2,584/oz for sale receipts of $15.77 million.
Bullion on hand/gold in transit at end of quarter totalled 2,354 ounces. Full year guidance for FY22 is 24,000 -28,000oz.
Black Cat is one of Bosio’s top picks he is personally a shareholder in.
Northern Star recently sold the company-making ‘Paulsens’ and the ‘Coyote’ projects including mill infrastructure and their resources to the junior.
“Those assets are no longer meaningful or of a size that would move the needle for Northern Star – but those same assets in Black Cat can be company-makers,” Bosio says.
“There’s lots of exploration upside, both along strike but also regionally around that Paulsen’s mine.
“You’ve got infrastructure in place, it’s in very good condition, it’s all permitted and if Black Cat are able to exploit another repetiiton of that system, or even find new ounces that were not exploited by Northern Star, that could turn into a company-maker.”
He also flagged the “excellent” management team which includes Paul Chapman and Les Davis who are both founders of Silver Lake.
“[Black Cat] could go from having three exploration projects now to having three potential development/production projects, and if they can get them into production there’s no reason why they can’t be another Ramelius or Silver Lake,” Bosio says.
Bosio also likes Matador, but he is not a shareholder. Matador is exploring the ‘Cape Ray’ gold project in Newfoundland, Canada, which is on 120km of continuous strike in a proven, yet under-explored multi-million ounce regional-scale gold structure.
It has an 837,000oz and growing resource, with an $11m bank balance funding it for the 2021/2022 exploration seasons.
“That is a company which has Ian Murray, formerly of Gold Road, on the board. While an early stage player, it has a lot of exploration potential,” Bosio says.
“They’ve got a really exciting exploration program in Newfoundland, which is probably regarded as one of the most exciting gold provinces in the world.”
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