Barry FitzGerald: Small caps are where the value is in gold right now
Mining & Resources
‘Garimpeiro’ columnist Barry FitzGerald has covered the resources industry for 35 years.
Value in the mid-tier gold producers has become harder to find despite the local gold price climbing back over a historically high $1,800 an oz.
That is because their share prices have run hard in response to gold’s price strength, carrying them to levels at which it is hard to find value propositions.
It is a curious situation – where good news kind of turns bad for buyers of gold stocks – and has prompted analysts to slap “sell’’ recommendations on some big names in the sector.
It is a theme that Canaccord analysts looked at earlier this week. It said that to a degree, increased gold prices have already been priced in to the mid-cap producers, with share prices in the sector up by 10 per cent in the last month and 17 per cent over two months.
“We continue to see smaller cap producers as offering better value,’’ Canaccord said.
Garimpeiro goes a step further to suggest there is also better value to be had amongst the junior explorer/developers, particularly where a strong newsflow can be expected in coming months, and where market values are yet to reflect the leveraged upside to an emerging big discovery.
Getting real in Burkina Faso
There are lots of them out there but today Garimpeiro returns to one first mentioned here last November when it was a 1.6c stock – Golden Rim Resources (ASX:GMR).
The reason for the revisit of the Burkina Faso explorer is that much has happened for the better since November, something partly reflected in Golden Rim Resources’ share price improvement to 2c.
Since November, Golden Rim Resources has increased the resource estimate at its flagship Kouri project in the east of the country, well away from security concerns near the northern border with Niger, by 40 per cent to 1.4m ozs.
While that in itself was impressive stuff for a company with a $9.2m market value, Golden Rim Resources has added to its story by securing tenements adjacent to its Kouri deposit, and by confirming the gold potential of a newly identified footwall shear zone that lies adjacent to but outside of the Kouri resource.
Hitting a gold mine
When taken with the flow of impressive results from the Red Hill ‘’satellite’’ gold deposit, 4.5kms south-west of Kouri, there is good reason to start thinking about the potential for Golden Rim Resources to become a multi-million ounce gold story.
The acquisition of the adjacent permits in a share deal with Pella Group – it will become a 15 per cent sharer holder – secures the direct strike extent of the Kouri resource and provides a further 24kms of prospective shear zone to explore for additional gold resources.
Apart from the mineralisation extending in to the newly acquired ground, it is also home to a big granite intrusion 10 kms from the current permit boundary with Kouri.
The known gold mineralisation there (high-grade quartz veins in granite) wraps around the intrusion and has attracted the attention of Garimpeiro’s West African cousins.
Golden Rim Resources managing director Craig Mackay told Garimpeiro that there is “real potential there for something of decent size.’’
Mr Mackay is also excited about the potential of the newly identified footwall shear zone at Kouri which was identified by structural geology consultants.
The zone lies adjacent to but outside of the Kouri resource but is suspected to be the main “fluid transfer pathway” for the mineralisation.
Recent drilling in to the zone returned two high-grade intersections separated by 300m (4m at 44.7g/tonne gold from 34m and 3m at 8.4g/t gold from 10m).
The structure runs for 5kms in Golden Rim Resources’ ground and crosses the boundary in to the newly acquired tenements where it is thought to run for the same distance again.