Small cap gold stocks are driving global exploration – and their share prices show it
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Gold explorers — particularly small caps — were the mining industry’s heavy-lifters last year and the results can be seen in big share price jumps driven by all that “news flow”.
See below how 200 ASX gold stocks have fared over the past year.
After four years of declining investment, the global mining industry marked a 14 per cent increase in non-ferrous (non-iron) exploration to nearly $US8 billion ($10.3 billion) last year, according to S&P Global Market Intelligence.
Gold explorers accounted for 73 per cent of the increase.
They spent $US4.1 billion globally — a jump of 22 per cent over 2016 – to account for more than half the global exploration budget.
Across all sectors, it was the mainly the small guys injecting cash into exploration, while the majors continued to allocate only a small part of their revenue on finding more minerals, S&P found.
That paid off handsomely for many ASX-listed small cap gold explorers.
Among the top 30 best performing ASX gold stocks tracked by Stockhead (see table below), only one — Kidman Resources — has a market cap of more than $300 million.
King River Copper – profiled this week by Stockhead columnist Tim Treadgold — is the king of ASX gold small caps with a 612 per cent share price hike over the past year. It has a market cap of $68 million.
Draig Resources has soared 580 per cent, Riedel has gained 426 per cent and Moreton Resources is up 267 per cent.
The trio has a combined value of less than $150 million.
Other small gold explorers Anglo Australian Resources, Apollo Consolidated, BBX Minerals and Force Commodities have also delighted shareholders with a tripling – or better – of their shares.
More dollars = more drilling
Across all mining sectors, improved equity market support for explorers “allowed many companies to launch or resume drill programs on their most promising projects,” said Mark Ferguson, associate research director at S&P Global Market Intelligence.
“In the last quarter of 2017, there was a sharp increase in reported drill results, and financings closed the year on a high note. As a result, our year-end measure of exploration sector activity reached levels not seen since early 2013.”
From 2012 to 2016, the major producers slashed exploration spending at a faster pace than their revenues declined, S&P Global noted.
This drove their ratio of exploration spend to revenue down to a 12-year low of 1.8 per cent in 2016, from 3.2 per cent in 2012.
Although the group’s exploration budgets for 2017 increased, rising revenues for the year will likely result in little change to the 2017 ratio, S&P Global said.
Majors leave the exploring to juniors
“The majors are now returning to the model of investing in juniors as their exploration arms and then acquiring or investing in those juniors,” Jason Stirbinskis, managing director of Columbia-focused gold explorer Andes Resources told Stockhead recently.
“You are seeing a lot of the majors coming in and grabbing large stakes in the juniors in the country.”
Andes is raising $2 million in seed capital and will soon begin drilling on an 80,000 hectare gold and copper-prospective landholding in Colombia. The company is aiming for an ASX listing later this year.
In late 2016, heavyweights BHP Billiton (ASX:BHP) and Newcrest Mining (ASX:NCM) fought for a stake in SolGold’s (AIM:SOLG) Cascabel copper-gold project in Ecuador. Newcrest was the victor, now owning a 14.5 per cent stake in the project.
Brisbane-based SolGold is listed on London’s AIM exchange and has a market cap of £374 million ($665.6 million).
Newcrest, however, has not been one of the better performing stocks over the past year, losing 0.5 a per cent to trade at $21.72 on Tuesday.
Here’s a table showing how 200+ ASX gold stocks have fared over the past year. Search or scroll to reveal more.
Canada, Australia and the US continued to be the top three destinations for exploration spending.
And exploration spend is expected to grow further this year.
“Despite significant market volatility, the generally positive trend in metals prices has continued in early 2018,” Mr Ferguson said.
“We therefore expect the global exploration budget for 2018 to increase by a further 15 per cent to 20 per cent year-over-year.”
Lower drilling rate worrying
Although exploration spend is on the rise, the number of metres drilled fell in the December quarter last year, which the Association of Mining and Exploration Companies (AMEC) has expressed concern over.
Compared to the previous quarter, the total metres drilled fell by 5.1 per cent — with brownfield exploration slipping 2.9 per cent and greenfield exploration dropping 9 per cent.
Greenfield refers to the exploration of new ground where a discovery has not yet been made, while brownfield refers to near-mine exploration undertaken to expand production at an existing operation.
“While the rise in mineral exploration expenditure is good, the fall in meters drilled is a concern,” AMEC CEO Warren Pearce said.
“The fall in greenfields mineral exploration is particularly worrying.”
Total Australian exploration expenditure rose 4.4 per cent to $20.9 million in the December quarter. The largest increase came from gold exploration, which rose 8.3 per cent to $16 million.
AMEC has been advocating for regulatory reform to encourage greater mineral exploration and mining in Australia.
The organisation is pushing for a new exploration tax credit, which has been tabled and passed through the House of Representatives but is yet to pass the Senate.
The four-year $100 million Junior Mineral Exploration Tax Credit would allow explorers with no mining income to renounce and pass on future tax deductions to Australian resident investors.