Why gold explorers like Breaker Resources look like good value
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The market is holding back on Breaker Resources until it comes up with a maiden resource estimate for an exciting gold discovery, writes Barry FitzGerald in his Garimpeiro column
The gold price was a tower of strength during the recent sharemarket shakedown.
While equity values – and cryptocurrencies – have been destroyers of value, the gold price in US dollars has held about steady in the last 30 days while in Australian dollars, it has been tracking back towards a bumper $1700 an ounce.
Gold’s strength – it is currently well ahead of last year’s average of $US1253 an ounce at $US1334 an ounce – comes down to US inflation fears outweighing the normal negative for the metal of higher interest rates.
Either way the metal’s performance has protected the leading gold equities from the worst of the turmoil in equity markets.
But it has been a different case for the gold developers and the advanced explorers.
They got hit along with the rest of sharemarket and are yet to recover, presumably on the basis that as they are not yet in production, gold’s safe haven status does not apply to them.
We won’t know whether hindsight will tell us in a month or so if the over-sized sell-off in the developers/explorers was a buying opportunity that went begging.
What is known for sure is that the developers/advanced explorers are on the whole a lot “cheaper’’ than they were a couple of weeks ago.
Advanced explorer Breaker Resources (ASX:BRB) is an example.
It was a 69c stock a month ago but is now back at 52c for a market cap of $75m — a level at which its executive chairman, Tom “The Colonel” Sanders, reckoned back in December made the stock dirt cheap, exposing the company to potential attention from any number of potential takeover suitors.
But it is fair to say the market is simply holding back on Breaker until the company comes up with a maiden resource estimate for its exciting Bombora gold discovery, hidden beneath sand cover on virgin ground at the Lake Roe project area, 100km east of Kalgoorlie.
Breaker had originally planned to release the maiden resource estimate late last year.
But that was changed to March this year to bring in more drilling results from the hectic drilling campaigns the company has subjected Bombora to since it realised it was onto something with multi-million ounce potential back in August 2015.
The work to date indicates Bombora will shape into a large greenfields gold mine — both open pit and underground — with the potential to produce early cashflow from a gravity separation operation ahead of the main event thanks to favourable metallurgy.
Because drilling is yet to define the limits of Bombora, the March maiden resource estimate (assuming it is not delayed again) will very much be the first instalment.
To ensure investors are aware that the estimate is just a starting point, Breaker is likely to also include a stock exchange compliant “exploration target’’ to give a feel for what it believes the upside is at Bombora.
Bell Potter mining analyst David Coates likes the Breaker story.
“The latest drilling and metallurgical test work results further de-risk the commercialisation of the Lake Roe gold project and remain consistent with our investment thesis for a significant greenfields gold discovery,’’ he said in a January 18 research note which came with a $1.30 a share valuation.
Breaker was trading at 65c at the time. Coates has nevertheless reiterated his $1.30 a share valuation in his latest ASX-listed gold review (Bells Gold Tracker), released this week.