Barry FitzGerald: Gone cold on gold? Here are three junior explorers ready to spice things up
All the excitement around the battery metals – and now uranium – has left the gold stocks in the shade for much of 2021.
And because the yellow metal plunged to well below $US1,800/oz during the week, they will be left sitting in the shade for some time yet.
But there is good news in the bad in that value has returned to the sector, even if a sub-$US1,700/oz gold price is assumed.
Compared with the stretched valuations of much of the battery materials sector (the uranium price could go ballistic in coming months, so Garimpeiro puts the uranium stocks to the side for the moment), it can be said that valuations for the gold producers/developers are starting to look seriously underdone.
Macquarie tells us so. In a research note on the 17 gold producers/developers it has under coverage, 14 came with an “outperform’’ rating, that is, stocks trading well short of the firm’s target share price.
Apart from Bellevue, the other stocks assessed to have major upside were Northern Star (ASX:NST, 46%), Silver Lake (ASX:SLR, 44%), Westgold (ASX:WGX, 43%), Resolute (ASX:RSG, 56%), and Aurelia (ASX:AMI, 59%).
Importantly, the upside Macquarie reckons exists in the producers/developers is not reliant on a breakout in the gold price to the upside. In fact, Macquarie sees the gold price continuing to fall.
Its commodities desk has gold averaging $US1,750/oz in the December quarter ahead of fall to $US1,625 in 2022. It expects a bottom around $US1,500/oz in 2023.
It said the view was based on the expectation that strong (US) labour demand will deliver sufficient employment gains for tapering to be followed by five interest rate hikes, with the first coming in the fourth quarter of 2022.
For the record, the only stock that Macquarie had as “underperform’’ was Capricorn (ASX:CMM) because it was already trading at Macquarie’s target price. Its only sin is that it the only gold stock under the firm’s coverage to have posted a share price gain over the past year.
Garimpeiro hears what Macquarie is saying about the current undervaluation of the producers/developers but adds the comment that as a collective, they have themselves to blame because they have become boring.
And by that, Garimpeiro means that there is a lack of greenfields exploration by the producers/developers to inject some sex appeal into their stories.
There is too much talk about development metres and mill throughput rates rather than news on greenfield discoveries to capture the imagination of the very same investors who have fled en masse to the sexy battery materials and uranium space.
So more than ever, Garimpeiro’s interest is in the explorers. They too have been beaten up in response to the hit in the gold price.
But the good news is that they are more cashed up than ever before, giving them the funds to make a 10-bagger discovery, with a bit of luck.
Garimpeiro doesn’t make recommendations in what is a risky business. But he does mention the following stocks on basis that they are actively exploring interesting gold projects.
NEXUS MINERALS (ASX:NXM): There’s a bit of buzz about this one after high-grade results from drilling at its Templar prospect suggested it could be linked to the Crusader prospect some 1.2km away. Comparisons are being made to Northern Star’s nearby multi-million ounce Carosue Dam gold operations.
It last traded at 34c which is more than triple its level in July. But that’s not challenging if it is onto a big one.
BMG RESOURCES (ASX:BMG): It has been busy drilling away at its high-grade Abercromby gold project on the Wiluna belt, not far from the multi-million ounce Jundee and Wiluna mines owned by others. Assays results can’t be far off now. It’s trading at 7.9c.
MIDAS MINERALS (ASX:MM1): You have got to love the name. It is a recent float so unlike most explorers it doesn’t have hundreds of millions of bits of paper on issue, meaning it has great leverage to any exploration success. About to start drilling at its Weebo gold project near Northern Star’s Thunderbox mine.
Former Perseus boss Mark Calderwood is on board to oversee the program. It’s trading at 18.5c.