‘Guy on Rocks’ is a Stockhead series looking at the significant happenings of the resources market each week. Former geologist and experienced stockbroker Guy Le Page, director and responsible executive at Perth-based financial services provider RM Corporate Finance, shares his high conviction views on the market and his “hot stocks to watch”.
 

Market ructions

A volatile week for gold, which closed down $US3 after a big hit mid-week on Tuesday on the back of strengthening US dollar. Gold finished at $US1,730 ($2,273) an ounce in London on Friday.

Figure 1: Spot gold price (Source: www.kitco.com)

I’m not one to will bad things to happen but there is a strong rumour that our other loyal friend, Bitcoin (last closed at $US59,232 after recent highs of $US62,000), may be in for some heavy weather with rumours of an executive order by the Biden administration that Bitcoin algorithms may constitute acts of domestic terrorism. The flow on effects for other cryptocurrencies could also be devastating.

Figure 2: Bitcoin price (Source: www.forbes.com)

These sentiments are being echoed by the likes of Ray Dalio, billionaire founder of the world’s largest hedge fund and legendary investor, who considers there is a “good probability” that Bitcoin will be banned by the US government – comparing it to the 1930s US gold ban.

According to The Mercenary Geologist Mickey Fulp, who compares the current gold bull run to 2010 to 2015, we are now one-third of the way through this gold bull market, so I am going to suggest that the current news around Bitcoin may provide a lift to gold.

Another interesting movement lately is platinum which is trading at a ratio of 0.7 (two-year high) to the gold price compared to previous highs of 1.4x.

As we can see from figures 3 and 4, platinum (like palladium) is experiencing a surge in auto-catalyst demand for the medium to longer term.

Figure 3: Pt use (Source: Precious Metals Commodity Management LLC, March 2021)
Figure 4: Base case auto-catalyst demand (Source: Precious Metals Commodity Management LLC, March 2021)

Elsewhere copper was off 2.5 per cent for the week ($US3.97/lb) with a flattening forward curve in response to rising stockpiles and a reduction of Chinese inventories.

The uranium spot price remains strong, closing at $US31.88 a pound – up 7 per cent on the week with a strong increase in trading activity (figure 5) across sovereign funds, institutions, traders, retail investors and the like. It was however interesting that uranium did not score a mention in Biden’s infrastructure plan.

Maybe this was political expediency?

Figure 5: Uranium contracting volumes and price (Source: UX estimates, Cameco)

Over the weekend however there was talk that the EU was set to designate nuclear as a sustainable source of electricity, which opens the door for new investment under the continent’s ambitious green energy program.

China’s 14th five-year plan released a fortnight ago also buoyed the uranium market, with Beijing planning to up the country’s nuclear energy capacity by 46 per cent – from 48 gigawatts (GW) in 2020 to 70GW by 2025.

With uranium demand-supply levels now below that pre-Fukushima (2011) there is a case for an increase in prices. Morgan Stanley however highlights an “opaque inventory situation”, with BMO claiming the high levels of inventories do not set the scene for any foreseeable price rises.

Figure 6: Utility uncovered requirements (Source: UxC estimates – 31 December 2020)
Figure 7: AOU share price (Source: CMC Markets 1 April 2021)

Auroch Minerals (ASX:AOU) is about to launch into a 1,200m diamond and 1,800m reverse circulation (RC) program testing various magnetic targets along strike from the Horn project (figure 8), which delivered some excellent results over 2020 including;

  • 7.30m at 2.2 per cent nickel and 0.53 per cent copper from 143m (HNDD002); and
  • 4.09m at 2.4 per cent nickel and 0.61 per cent copper from 119.91m (HNDD001).
Figure 8: Plan of the Leinster nickel project showing planned drill holes relative to aeromagnetic highs (Source: Auroch ASX Announcement, 25 March, 2021)

The company also followed up with results from its maiden RC drilling program at the recently acquired Nepean project (AOU 80 per cent/Goldfellas Pty Ltd 20 per cent) situated 25km south of Coolgardie, Western Australia.

Results included:

  • 8m at 4.3 per cent nickel and 0.37 per cent copper from 35m, including 2m at 6.86 per cent nickel and 0.62 per cent copper from 37m (NPRC053);
  • 8m at 3.21 per cent nickel and 0.13 per cent copper from 63m, including 2m at 7.51 per cent nickel and 0.39 per cent copper from 68m (NPRC052); and
  • 5m at 3 per cent nickel and 0.79 per cent copper from 59m, within a broader mineralised zone of 16m at 1.42 per cent nickel and 0.27 per cent copper from 49m (NPRC056).

Results are awaited from a further 17 holes, including results from the regional aircore program that is investigating prospective ground 10km along strike from the old mine.

Anyway, it looks like the company has got some real momentum since we picked this up around 7c mid last year.
 

Hot stocks to watch

Figure 9: RIE share price (Source: CMC Markets, 1 April 2021)

After a dose of the Spanish Flu a couple of years ago chasing cobalt in Spain (I did suggest food and wine were a better bet), Riedel Resources (ASX:RIE) has recently reinvented itself as a gold explorer near Kingman Arizona, US through its acquisition of the Kingman gold project (figure 9).

A good thing as I prefer prickly pear Margaritas over Sangria any day of the week.

Figure 9: Riedel’s Kingman gold project in Arizona (Source: RIE ASX Announcement, 11 December 2020)

Following up on some high-grade gold-silver results, the company announced in late October last year the results from the first 21 RC holes, which returned multiple high-grade gold intercepts including:

  • 3.8m at 98.9 grams per tonne (g/t) gold and 151g/t silver from 20.6m, including 1.5m at 230.8g/t gold and 359g/t silver from 20.6m downhole;
  • 1.5m at 15.56g/t gold and 29g/t silver from 28.2m;
  • 4.6m at 4.44g/t gold and 7.8g/t silver from 18.3m, including 2.3m at 7.62g/t gold and 12g/t silver from 18.3m;
  • 4.6m at 4.24g/t gold from 10.7m and 2.3m at 2.82g/t from 29m;
  • 1.5m at 11.46g/t gold and 35g/t silver from 20.6m downhole;
  • 1.5m at 39.3g/t gold and 323g/t silver from 37.3m; and
  • 18.3m at 2.22g/t gold and 11g/t silver from 100.6m, including 4.6m at 8.39g/t gold and 39g/t silver from 100.6m downhole.

High-grade gold mineralisation is best drilled with a diamond drill bit given the potential for smearing and loss of gold in the RC drilling process, so I will be interested to see follow-up diamond drilling to confirm these grades. Mineralisation, albeit with limited drilling also appears to show reasonable down-dip continuity.

Assay results are due from a further 10 RC holes sometime in April/May, so this is definitely one to keep on the radar with the stock reaching a two year high of 5.8c on March 18, 2021 before settling at 2.8c on Thursday April 1, 2021.

We will soon find out who were the fools – the buyers or the sellers – on that particular day.

At RM Corporate Finance, Guy Le Page is involved in a range of corporate initiatives from mergers and acquisitions, initial public offerings to valuations, consulting, and corporate advisory roles.

He was head of research at Morgan Stockbroking Limited (Perth) prior to joining Tolhurst Noall as a Corporate Advisor in July 1998. Prior to entering the stockbroking industry, he spent 10 years as an exploration and mining geologist in Australia, Canada, and the United States.

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed, or otherwise assumed responsibility for any financial product advice contained in this article.