Fundie Stephen Gorenstein caught the gold boom early, and he thinks there's more to come

A veteran analyst with big ticket roles at Goldman Sachs and Bank of America and experience running business development across some of Australia’s largest gold miners including Newcrest and St Barbara (ASX:SBM), Stephen Gorenstein’s deep mining experience has underpinned a happy start to life at the helm of the Melbourne-based Ari Fund.

Now, he’s sharing his expertise with Stockhead readers to shine a light on where value can be found in ASX resources.

A large part of investing comes down to timing.

That counts doubly in the resources space, where the nexus of supply, demand and pricing is at the heart of the industry’s cyclical nature.

At the height of the lithium boom in late 2022 and early 2023 it took a measure of foresight to shift focus into what were then unloved corners of the resources market.

But when experienced analyst and back office miner Stephen Gorenstein took over management of Melbourne’s Ari Fund in April 2023, that was the key bet he made.

“We did take a large position in gold and we continue to have a large position in gold and that’s on the back of two different things,” he told Stockhead.

“When we first took over the fund in April 2023 we looked at the gold price at the time in an Australian dollar sense and realised it was at very good prices at A$3000 an ounce.

“We consider that to be a price that most producers should be able to make good margins with. We looked at the producers that could make good margins and we started deploying the capital around some of those positions, which worked very well.

“Since then, once we realised interest rates were starting to move into an easing cycle we took a larger position into gold, increased some of those positions and found some others as well.”

Eyes on M&A

The performance of the fund has been positive since. Gorenstein and his crew returned 19% to unitholders net of fees and distributions over 18 months through October 31, 2024.

That compares to a 10% drop in the ASX 200 Resources index in the same timeframe.

Among its 20-25 portfolio names are a collection of around 16 the fund considers ‘core positions’.

One measure of validation for Gorenstein and Co. has been the prevalence of M&A action in the stocks making up those core stakes.

Around 50% have seen some measure of corporate activity – a sign for investors that larger players in the industry view them as undervalued.

“We do take that as a bit of validation that what we’re looking at the corporates are seeing the same things we are,” Gorenstein said.

“We like to think we can pick it relatively early and hopefully we can continue to do that.

“The way we approach it is we spend a lot of time speaking to management and understanding what the resource actually looks like and where it can potentially get to.

“We spend a lot of time modelling the companies, working out what the potential of the asset is currently and what it could become with a bit of blue sky.”

Gold remains a major focus for the ARI Fund. Prices climbed as high as US$2790/oz in late October, sit at US$2658/oz currently and traded on Tuesday morning at $4130/oz in Aussie dollar terms.

Gorenstein says the outlook remains positive for gold, with the conditions for a rate-cutting cycle from the US Fed still in play despite a US dollar run post the election of Donald Trump.

He also remains positive on copper, on the back of the electrification thematic.

“We think that will continue,” Gorenstein said. “Whatever your political view on that, more copper is required than there is currently.

“Over the medium and long term copper prices are set to increase materially. And when we say materially we mean significantly – not US$4/lb to US$5/lb, but much more than that.”

Key picks

So where does ARI look for high-conviction stock ideas right now?

Two of the big ones are mid-tier Australian gold miners, expected to generate strong cash flows in the current December quarter.

“Two of our key picks right now, particularly in the gold space, are Vault Minerals (ASX:VAU), the former Red 5, which we have sold some but maintained a good position in. We just see they’re a good cash generator at these prices as well as being very positive on the valuation front,” Gorenstein said.

“The other one is Ramelius Resources (ASX:RMS), which is our largest position in the portfolio.

“As gold prices maintain themselves or continue to rise, as soon as the quarterlies come out the market will start to realise just how much cash these guys are generating and that they’re not going to use this cash badly.”

The December quarter is likely to see an all time record in average spot gold prices. While both have a component of production sold into hedges at prices 25% lower than spot, King of the Hills gold mine owner VAU and RMS still returned $35m and $90m in underlying free cash flow at much lower price levels in the September quarter.

A couple of gold explorers stand out in the pre-development stage as well.

“One of our smaller plays that we quite like is Predictive Discovery (ASX:PDI). That’s a development play that we very much like up in Guinea,” Gorenstein said.

“Perseus Mining (ASX:PRU) has got a big stake in that, which is again another validation of that position.

“We think that is likely to see more takeover activity over the next 6-12 months.”

PDI’s 5.4Moz Bankan deposit is one of the largest undeveloped gold resources in West Africa, with cashed up 500,000ozpa Perseus taking a 19.9% stake in two raids earlier this year.

Early stage Cote d’Ivoire gold explorer Many Peaks Minerals (ASX:MPK), which recently launched a new drill drive at the Odienne gold project, is also on Gorenstein’s radar.

“We think it’s looking to hit some very nice results over the next few months,” he said.

When it comes to copper, ARI’s preferred exposures are dual-listed Canadian stock Capstone Copper Corp (ASX:CSC), which produced 47,460t in the September quarter from its mines in South America, and $650m-capped FireFly Metals (ASX:FFM), which has a JORC resource of 59Mt at 2% for 1.2Mt of CuEq metal at its Green Bay project in Canada and yesterday surged ~13% on drill hits from a major 130,000m resource-expansion drill program.

“Capstone is a very strong producer. It is generating very, very good margins at these copper prices in our opinion, with growth to it, whereas FireFly’s at the earlier stage, it’s obviously a lot less expensive, but its resources continue to grow and will continue to grow, and they can move back into production relatively easily,” Gorenstein said.

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