Gold stocks guide: Here’s everything you need to know
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The past few years have largely been dominated by the battery metals, but investors are again flocking to ASX small cap gold stocks thanks to the strengthening price.
This is largely due to the continued economic uncertainty caused by the US-China trade ructions.
When the US dollar weakens, the gold price tends to strengthen. And in recent times, many of US President Donald Trump’s moves have been positive for gold.
There have been some pretty hefty deals done recently — like gold mining’s biggest ever merger, the $US18 billion ($25.9 billion) tie-up between Barrick Gold and Randgold Resources – and the $US10 billion marriage between Newmont Mining and Goldcorp.
But for the first time in quite a while, cash is starting to flow down into the junior gold explorers that play a key role in finding new resources.
The price of the precious metal continues to trade over $1850 oz in Aussie dollars, edging ever closer to the 2011 all-time peak of nearly $1900 oz.
The consensus is that there will be a longer-term bull run, with several market watchers suggesting further price rises through to at least 2021.
According to the World Gold Council, about 90,040 tonnes of gold has been mined throughout history, of which around two-thirds has been mined since 1950.
Jewellery is the largest source of demand for gold, accounting for about half of total demand. This is led by India and China, which together account for 50 per cent of current global gold demand.
But other sources include investment and central bank demand as well as technology, with new uses in medicine, engineering and environmental management.
The thing about gold is you can’t really destroy it and it is a commodity that is on-sold or recycled, so all the gold ever mined is still around somewhere in the world.
The World Gold Council says if you were to jam every single ounce of it together, the resulting cube of pure gold would only measure around 21m on each side.
The higher gold price is one of the key drivers propelling investors towards ASX small cap gold stocks. The higher the price of gold, the more likely an explorer will generate a return on their investment if they find gold – simples.
So it’s no surprise the recent surge in the Aussie dollar gold price has again ignited investor interest, especially as production is declining.
Australia, for example, is set to see a major drop-off in gold production as early as 2020, according to S&P Global Market Intelligence.
“In the case of Australia, despite production being on track to hit a 26-year high of 10.2 Moz [million oz] in 2019, we estimate that Australian gold production will start to decline thereafter,” said Chris Galbraith, an analyst at S&P.
“We are forecasting a 9 per cent fall year-over-year in 2020, and we expect the country’s production to reach a generational low of 6.8 Moz by 2022 – a 33 per cent drop within only three years.”
S&P attributes the anticipated decline to the short mine lives of recent start-ups and some significant mines approaching the end of their life.
Since the end of the mining boom, many Aussie gold explorers and producers have become better at managing their costs and setting themselves up to be low-cost producers.
There are more than 400 ASX stocks with exposure to gold projects in Australia and around the world.
De Grey Mining (ASX:DEG) is closing in on a bigger gold resource in the Pilbara – where it already has over 1.4 million oz.
The company’s Pilbara gold project hosts over 200km of mineralised shear zones spanning a 1480 sq km landholding.
De Grey is rapidly advancing exploration in its drive to upgrade and expand the known resources, as well as discover new deposits.
Artemis Resources (ASX:ARV) and its Canadian partner Novo Resources ignited a new gold rush when they uncovered what was described as “watermelon seed nuggets” south of Karratha, in the WA Pilbara, at their Purdy’s Reward project in July 2017.
Analysis of the nuggets later determined it was conglomerate-hosted.
Conglomerate gold refers to nuggets hosted in rock containing rounded grey quartz pebbles and other minerals. The world’s most productive gold region, South Africa’s Witwatersrand Basin, is famous for its similar geological formation.
This type of gold became all the rage for investors for awhile, but the shine has now well and truly worn off with little news of advancements in this space.
Kairos Minerals (ASX:KAI) is another ASX small cap explorer that has conglomerate gold ground in the Pilbara.
The company is undertaking exploration on multiple gold targets at its Croydon and Kangan projects.
Chalice Gold Mines (ASX:CHN) is one of the three ASX-listed players that have the most prospective parts of the Bendigo goldfield in Victoria stitched up.
Bendigo produced more than half the world’s gold for 40 years between 1850 and 1890. But up until two or three years ago, it had taken a backseat in the hunt for gold in Australia.
The Victorian government estimates there is 32 million oz of undiscovered gold in the Bendigo Zone beneath Murray Basin cover, where Chalice now has a ground position of some 3000 sq km.
Breaker Resources (ASX:BRB) is advancing its 1.1 million oz Bambora deposit, part of the Lake Roe project, 100km east of Kalgoorlie in Western Australia.
The company has been trying to find the end of the large deposit, but Breaker says that after more than two years of drilling it is still open in every direction and new zones of mineralisation are still being discovered.
Bellevue Gold (ASX:BGL) has a high-grade gold mine of the same name in Western Australia.
The 550,000oz Viago lode is one of the world’s highest-grade deposits, grading 22 grams per tonne (g/t). Anything over about 5g/t is considered high-grade.
Viago extends over 1.4km and remains open to the north, south and at depth.
Moho Resources (ASX:MOH) has made a promising gold discovery in north Queensland at a project called Empress Springs, part of a joint venture with resources giant Independence Group (ASX:IGO).
The company says there has been no previous drilling for gold and base metals in the Empress Springs area, yet it is right near the historic Croydon goldfield that produced 1.2 million oz of gold.
Following a review of the maiden drilling results, Moho applied for an additional 2000 sq km around the North Queensland project.
Cervantes (ASX:CVS) is an interesting one, having flipped from aquaculture to gold exploration in 2016.
The company is exploring the Albury Heath project in Western Australia, where it has uncovered very high grades of up to 202.8g/t gold.
The Albury Heath project has a 35,500 oz resource within the old mine, but Cervantes has six other permits surrounding the mine that it wants to drill test for high-grade gold.
In March 2019, Kingsgate Consolidated (ASX:KCN) received an $82m insurance payout from Zurich Insurance Australia, and other insurers, over the premature closure of its Chatree gold mine.
Chatree was closed after the Thai government decided not to renew the metallurgical licence after 2016. Kingsgate’s lease for Chatree was due to run to 2028.
But Kingsgate had a US$200m ($288.7m) political insurance policy with Zurich, and other insurers.
With the money, the company can now look at either developing or selling its 1.9 million oz Nueva Esperanza gold project in Chile.
Sultan Resources’ (ASX:SLZ) Lake Grace project, 250km south of Perth, is in the same neighbourhood as Ramelius Resources’ (ASX:RMS) recently acquired 700,000 oz Tampia deposit and Ausgold’s (ASX:AUC) 1 million oz Katanning deposit.
It is also surrounded by tenements held by a joint venture between Cygnus Gold (ASX:CY5) and larger miner and explorer Gold Road Resources (ASX:GOR).
Blackham Resources (ASX:BLK) is already producing gold from its Wiluna mine in Western Australia.
The company has identified a high-grade, free-milling deposit that it expects will extend the life of the operation and increase production.
Blackham’s plan is to eventually expand production to 120,000 oz per annum.
Okapi Resources (ASX:OKR) is exploring for gold in Western Australia and the Democratic Republic of the Congo.
The company also has an 8.4 per cent stake in Amani Gold (ASX:ANL), which owns the Giro gold project in the DRC.
Both Okapi and Amani are chaired by well-known mining personality Klaus Eckhof.
Okapi is also assessing other potential project opportunities both within and outside of the DRC.
West African Resources (ASX:WAF) has found itself a nice spot in West Africa, which has been yielding quite a bit of high-grade gold for the junior.
The company previously struck grades of up to 860g/t in Burkina Faso and expects its Sanbrado gold mine to be a highly profitable operation producing as much as 301,000 oz in the first year.
All-in sustaining costs (AISC) of $US497 ($717.40) an oz in the first year would see the company make a nearly 62 per cent profit at a forecast price of $US1,300 an oz.