Gold stocks guide: Here’s everything you need to know
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Over the past 12 months the gold price has rocketed an incredible 21 per cent, from $US1199/oz ($1750/oz) to $US1455.5/oz ($2124.50/oz).
This crazy price action can be attributed to global economic uncertainty – gold is seen as a ‘safe haven’ asset in troubled times — largely caused by US-China trade ructions.
Unlike industrial commodities, an unstable macro backdrops works in gold’s favour.
Analysts at Citi, for example, recently increased their price forecast to $US2,000 an ounce (almost $3000/oz in Aussie terms), arguing it will “trade stronger for longer” based on the host of geopolitical risks (like the U.S.-China trade tensions), the prospects for weaker global economic growth, and continued loose monetary policy.
“We now expect spot gold prices to trade stronger for longer, possibly exceeding $US2000/oz and posting new cyclical highs in the next year or two,” Citi told clients in a note.
Deloitte also says the foundations driving the gold price rally look sustainable, particularly as the global economic outlook becomes more uncertain.
“That said, keep an eye on those all-important China-U.S. trade negotiations. An earlier than expected resolution to the trade conflict could erode some of that safe haven support and send investors elsewhere in search for better returns,” Deliotte’s Ian Sanders says.
So far, things look very good for gold stock valuations – especially at the big end of town.
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 small cap explorers and their investors have also flocked to gold in 2019 as prices have strengthened.
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. This number is growing as a rapid rate as companies shift their focus to gold assets from (currently) less-desirable commodities, like battery metals.
And there’s a theme emerging as ASX-listed explorers look to revitalise very old, often high-grade mines in this buoyant gold price environment.
Old mines usually come with an existing resource — even if it isn’t up to JORC 2012 standards — and fresh gold is easier to chase down, which means a quicker path to production.
Great Southern Mining (ASX:GSN) recently picked up the Cox’s Find mine, which produced 77,000 ounces at more than 21g/t between 1935 and 1942.
“One only has to look at the depths of extraction of modern-day mining (and subsequent resource cut-off grades) to know that this wouldn’t be the first historic gold mine to be resurrected on significant ounces discovered at depth,” Great Southern chairman John Terpu told Stockhead.
He is talking about guys like Spectrum Metals (ASX:SPX) and Bellevue Gold (ASX:BGL), who are enjoying wild success in 2019. The list of success stories will continue to grow in 2020.
The systematic exploration of old gold workings continues to pay off for explorer Ausmex (ASX:AMG).
Greenpower Energy – now Great Northern Minerals (ASX:GNM) – just bought historic gold mines in Northern Queensland.
Silver Mines (ASX:SVL) is dusting off the Tuena project in NSW, a series of historic hard-rock and alluvial gold mines worked between the 1850s and early 1900s.
Stavely Minerals (ASX:SVY) — even though investor attention is focused on that huge copper discovery in Victoria — has the Mathinna project in Tasmania, essentially untouched since 1932.
According to official records, the district produced 289,000oz of gold grading close to 30 grams per tonne (g/t) back in the day.
There’s also Kingwest (ASX:KWR), Norwest Minerals (ASX:NWM), Rox Resources (ASX:RXL), Venus Metals (ASX:VMS) and many more.
When it comes to big, greenfields projects, De Grey Mining (ASX:DEG) already has a 1.68 million oz (and growing) resource in the Pilbara.
The company’s Pilbara gold project hosts over 200km of mineralised shear zones spanning a 1480sqkm landholding.
De Grey is rapidly advancing exploration in its drive to upgrade and expand the known resources, as well as discover new deposits.
Also in WA, 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.
In Victoria, Kirkland Lake Gold’s recent success at the Fosterville gold mine, which has seen it emerge as one of the lowest-cost and most profitable gold mines in the world, has brought Victorian gold back into vogue – attracting a host of explorers eager to repeat its success by finding new multi-million-ounce deposits.
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.
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 2000sqkm 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 35,500oz resource within the old mine, but Cervantes has six other permits surrounding the mine that it wants to drill test for high-grade gold.
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).
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 explorer Tietto Minerals (ASX:TIE) has just increased its Abujar gold project resource from 1.7moz to 2.2moz – and there’s more to come.
“We will be very busy in 2020 as our fleet of four company drill rigs are on track to deliver 50,000m or more of drilling by Q3 2020, doubling all drilling at Abujar to date, as we target continuing rapid growth in our gold resource inventory,” says managing director Caigen Wang.
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.