Diggers and Dealers: Evolution Mining’s Jake Klein says inflation remains a tailwind for gold
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Evolution Mining (ASX:EVN) boss Jake Klein says the environment to push gold above US$2000/oz is already here, telling investors to look to gold for long-term returns in the face of competition from new assets and commodities like battery metals.
“Do (lithum companies) have higher returns? Or do they have high expected returns?,” he questioned. “Because I can demonstrate that over time Evolution has delivered a return on capital that I think would exceed any of these future facing metals producers over a decade.”
Gold miners, especially Evolution, have lagged this year with Evolution’s 2022 financial year amid the most disappointing in its history after a big downgrade to both production guidance and forecasts for the next two years.
But Klein thinks the US Fed will struggle to get inflation under control, providing the environment for gold, currently US$1760/oz, to push beyond US$2000/oz.
“I sense investors’ and understand investors’ frustration over that,” he said.
“But I think what you’ve had is a real liquidity contraction, where people have been looking as to what they can sell, before you reset and start to think, OK well how do I reallocate money to sectors and things that I think are going to go up?
“So there has been a fear factor over the last six months, nine months.
“You know, the Fed has come out swinging and talking very strongly about their intent to raise rates until inflation is under control. I just don’t think that’s possible.”
Klein views the replacement of specialist gold investment funds with generalist funds as a major headwind for the sector, leading to stronger competition with more fashionable commodities.
“I think what’s happened is over time, if I look at my career which is now 20 plus years, there was a significant and deep pool of gold – only active fund managers, largely in North America, but some in Australia,” he said.
“Those seem to have really declined and have been replaced by either passive or index funds, or generalist fund managers.
“So if you look at our top 10 shareholders, probably half of them are ETFs, or index related, and half of them are Australian superannuation funds.
“So you’re now competing for dollars in allocation within their general portfolio rather than going to a gold investor and saying, please invest in me, we’re better than other gold companies.”
Costs and worker availability are also looking like a challenge, with Klein unable to provide any detail on when it may review an expansion of its Mungari mill near Kalgoorlie after delaying an FID on the development because of inflation and a “boomtime” labour shortage.
But after initial challenges and an initial failure of strategy at Evolution’s difficult Red Lake operations in Canada, Klein believes that mine is turning a corner, warning it’s too early to judge the gold sector’s until now unimpressive move into North America.
“Canadians are very good miners but it’s really think about it as a mine that needed a reset completely rather than a mine in Canada that was not operating well, because Canadians couldn’t operate it well,” he said.
“It needed money, and it needed investment and needs love and attention.
“Maybe we could have said we’re actually putting this mine on care and maintenance, and we’re recapitalising it and we’re reopening it in two years time and then restarted it as a 200,000 ounce a year operation.
“That’s probably one kind of reflection that I’d have.
“But I think you’ve got to remember that everyone’s kind of painting the Australian acquisitions as failed. I think it’s too early to put that judgment on them.”
De Grey Mining (ASX:DEG) delivered a major bonus ahead of managing director Glenn Jardine’s Diggers and Dealers appearance today, with some exciting drill hits outside its already voluminous Hemi gold resource in the Pilbara.
359.4m at 1.2g/t a full 200m below its Diucon resource is nothing to sneeze at, suggesting that even after well over $100 million worth of drilling more remains to be found at the emerging Tier-1 gold mine.
A new 10.6Moz resource announced in May for the broader Mallina gold project where Hemi is based will be used in a PFS in September.
Talking to journos on the sidelines of Diggers and Dealers, Jardine said the company will be looking at its drilling strategy closely after the results.
“We’re currently running two diamond drill rigs. And we’re looking at what that mix and what that number looks like now following this result,” he said.
“We’ve been drilling frantically, I guess, for the last six months.
“And what we’re doing now is just taking our heads out of all of that, and getting our geos to look at what we’ve got in terms of anomalism regionally at Hemi and greater Hemi and where we should go next.
“Because what we’re looking at is making new large scale discoveries. So we’re looking at finding another Brolga or another Diucon, or finding more of the same underneath what we’ve got.
“So we’re applying perhaps a lot more thinking to what we’re doing, then you have to do when you’re doing a drill out.”
The organising team at Diggers and Dealers seem to have a great sense of humour, or a future as a matchmaking service.
They coyly placed booths for De Grey Mining and Gold Road Resources (ASX:GOR) facing each other in the forum’s massive investor marquee.
Gold Road, of course, collected a 14.4% stake in DEG after buying out its top shareholder DGO Gold this year.
“I don’t know if that was deliberate from anyone at Diggers and Dealers but we both went in there yesterday and looked at the place and we just cracked up,” Jardine said.
Jardine insists no takeover or purchase talks have been held over the world class discovery, with Gold Road or anyone else.
At Stockhead, we tell it like it is. While De Grey Mining is a Stockhead advertiser, it did not sponsor this article.