Gold Digger: Bring on the recession already, gold bulls plead
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Our Gold Digger column wraps all the news driving ASX stocks with exposure to precious metals.
Gold prices initially weakened this week on a hot US producer price index (PPI) report, which stoked inflation worries and the possibly of more rate hikes.
After falling 0.2% in December, producer prices jumped 0.7% in January — nearly double what economists had forecast.
But the medium-term outlook for gold remains robust. OANDA’s Ed Moya says the worst-case scenario for gold is a ‘no landing’ scenario, which the Fed will not abide.
Unlike hard (recession) or soft (no recession) economic landings, in a ‘no landing’ scenario, the economy doesn’t slow down.
Inflation remains above-trend, and the Fed is forced to not only hike rates by more than expected but keep them elevated for longer.
“The US economy is too strong, and the Fed will have to consider being more aggressive with its rate hiking cycle, which should surely send this economy into a recession,” Moya says.
Which is good news for gold.
According to ANZ commodity strategists Daniel Hynes and Soni Kumari, gold underperforms in the six months before a recession but tends to outperform equities during them, with average returns of 16%.
“Gold might consolidate here until we see exactly how high markets want to price in the peak rate,” Moya says.
“Short-term dollar strength might drag gold down a little, but the outlook should be for higher prices by the end of the year.”
Newcrest Mining(ASX:NCM) delivered a shock $450 million dividend payout in a hint to shareholders it can go it alone in the face of a $24.5 billion bid from the world’s biggest gold miner Newmont Mining.
It came as Newcrest rejected the 0.38 for 1 scrip bid from Newmont, which valued Newcrest shares at a 21% premium to its pre-bid level at $27.16 a pop.
However, NCM has said it would allow Newmont under the hood, offering access to non-public information to inspire the Denver-based 6Mozpa gold giant to come back with a better offer.
RBC’s Alex Barkley said the dividend came as a surprise but sent a positive signal for its long-term prospects.
“We had expected the same 7.5cps paid in 1H FY22 to again be paid, leaving better cash flow in H2 FY23 to allow a 2H catchup payment,” he says.
“However, NCM has opted for a strong 1H dividend; firstly in terms of the interim, and this has been further topped up by the special. NCM said the dividend demonstrates confidence in its ability to fund its growth pipeline while simultaneously providing strong shareholder returns.”
The company made a statutory and underlying profit of US$293m after producing 1.04Moz of gold and 67,000t of copper in the first half of 2022-23, up 25% and 32% respectively with all in sustaining costs 8% lower at US$1089/oz and margins 17% higher at US$585/oz.
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The Chalice Mining (ASX:CHN) spinout has reported multiple high grade gold hits at Ironbark East, part of the flagship Pyramid Hill project in Victoria.
Highlights include 12m @ 6.18g/t gold from 74m, including 1m @ 52.9g/t from 77m – the highest-grade gold intercept to date at Pyramid Hill.
The drill program was focused on infilling around last year’s program which hit 40m @ 2.8g/t Au from 50m, including several 1m intercepts above 10g/t.
FAL has now defined high grade gold over 400m at Ironbark East. A program of more than 50,000m across the wider project remains on track to complete in May.
“Intersecting high-grade mineralisation at Ironbark East over a 400m strike length is a great result and provides us with encouragement ahead of the commencement of our diamond drilling program later this month,” FAL managing director Tim Markwell says.
“The results at Ironbark confirm the potential of diorite to host economic zones of mineralisation, especially with the intersection of a new zone at Ironbark Central announced earlier this month.
“Our success to date gives us the confidence to further ramp up our activity at Pyramid Hill and we look forward to putting out more updates over coming weeks.”
Pyramid Hill was CHN’s No 1 focus before it hit the motherlode at Julimar, and is highly prospective for high-grade gold deposits like the nearby, world-class Fosterville mine.
According to the Victorian government there’s 32Moz of undiscovered gold in the North Bendigo zone where FAL has a dominant landholding.
FAL is notably chaired by Mark Bennett, discoverer of the Nova nickel discovery.
The $46m capped stock had a massive $23m in the bank at the end of December.
The industrious explorer keeps hitting thick gold at the Fortitude North discovery, a stone’s throw from the company’s 489,000oz Fortitude gold mine in WA.
New highlights include 19m at 3.77g/t gold from 100m, incl. 14m at 4.59g/t.
A 1.6km-long system has been defined so far, and it remains open to the north.
This suggests that the remaining 1,792m of drilling, to be completed in March, “will unveil additional thick, high-grade shoots not yet defined by existing drilling”.
MAT says Fortitude North already looks bigger and better than the Fortitude mine.
“These results continue to support our view that Fortitude North is a bigger system than the Fortitude gold mine where Matsa has an established resource of 489,000oz and a 2021 mining study that indicates a positive cash flow of AUD$95m,” MAT boss Paul Poli says.
“The thicker intercepts in the high-grade shoots provide substantial volumes of gold not seen in previous drilling and certainly eclipse what we have seen at Fortitude gold mine.
“What is really exciting, is that the drilling previously completed to the north appears to have completely missed the orientation of these high-grade shoots.
“This new drilling emphatically indicates the system remains open to the north, potentially due to simple fault offset.”
MAT is increasingly confident of achieving its near-term goal of defining 1Moz at the wider Lake Carey project, Poli says.
The overall resource is currently 886,000oz at an ore grade of 2.4g/t.
“I want to reinforce that this year, we have set out a clear key objective for Matsa,” he says.
“We aim to deliver a maiden resource at Fortitude North and take our total Lake Carey gold project resource base to over 1 million ounces before mid-year. Never have I been more confident that we can deliver on this objective.”