MoneyTalks IMARC edition: Could unloved gold juniors be ripe for the picking?
Gold prices are down almost 10% this year, a crisis of confidence for a commodity already in the doghouse in 2021 amid a perpetual cycle of interest rate rises around the world.
The 75bps lift by the US Fed this week, though couched in language that suggests a pullback could come down the line, has again highlighted the tough spot gold investors find themselves in as central banks pull the key lever they have to contain inflation.
Prices have fallen to around US$1630/oz, threatening the US$1600 level with more rate rises likely on the cards.
Lowell Resources Fund (ASX:LRT) chief investment officer John Forwood says, outside of lithium, juniors are finding it hard to raise cash and justify large exploration programs amid a capital drain.
But, speaking to Stockhead on the sidelines of the International Mining and Resources Conference in Sydney, Forwood said the falling interest in gold stocks was creating value opportunities at the small end of town.
“At the Lowell Resources Fund, we’re trying to be counter-cyclical,” he said.
“We think gold equities are very unloved. If you look at the gold price in Aussie dollar terms, it’s actually really good. It’s $2500/oz, been up to $2,600 Aussie dollars an ounce.
“The producers while they’ve had cost escalation, are still … somewhere well south of $2,000 an ounce in terms of their all in sustaining cost.
“So the margin is still pretty good. If you’re producing 100,000 ounces a year at less than $2,000 an ounce cost, you’re making $50 million a year, and you should be able to be stashing some of that money away.”
Lithium prices have continued to hit new records the whole way through 2022, with lithium hydroxide chemicals in Asia going at around US$83,000/t and spodumene spot sales tracking as high as US$8000/t in recent weeks.
Forwood says the price is “potentially in bubble territory”.
“Like I said the other day, I’ve never seen offtake agreements being signed by credible partners for really, really early stage projects, projects that haven’t even been drilled, they might just have a lithium soil anomaly,” he said.
“Offtake agreements are being signed on these things, I can’t ever remember seeing that in any commodity. So that does indicate how hot the market inlithium has got.”
On the other hand, gold companies are receiving short shrift from the market despite prices being not too far off historical highs.
“Flynn (ASX:FG1), for example, (where Forwood is a director) put out a 1m at 65 grams a tonne intersection and it didn’t even trade,” he pointed out.
“There was no trade on the stock market that day for the company. At least it didn’t go down, I suppose, but maybe that demonstrates the lack of interest in the sector at the moment.”
A number of the companies Lowell and Forwood are tracking are in the gold space. He says a couple of explorers with some under-the-radar drill success are piquing his interest.
Pacgold owns the Alice River gold project in north Queensland, where exploration success made the company one of the top performing gold IPOs of 2021.
It is down almost 29% to date at a market cap of ~$20 million, but remains well up on its July 2021 float.
Its most recent step out drilling included a hit at the F1a Zone of 14.9m at 10.3g/t, including 4.9m at 21.4g/t.
“We’ve been in there since before their IPO in terms of (being an) investor and they’ve got a great project in Far North Queensland pretty much right in the middle of Cape York,” Forwood said.
“They’re hitting some really high grade gold.”
Another goldie presenting at IMARC Forwood and Lowell have on their radar is Southern Cross Gold.
After listing this year, the junior is exploring the Sunday Creek gold project in the Melbourne Zone of the Victorian gold fields, where multiple thick, high grade drill holes have pointed to a potentially significant discovery of gold and critical mineral antimony.
“They have had, I think, 19 drill intersections which are 100 gram meters, and that’s a pretty good benchmark,” Forwood said.
“A number of geologists will say, if you have one intersection at 100 gram meters, that’s a discovery and these guys have had 19. They’re all in clusters but that’s a pretty impressive hit rate.
“Their market cap is still pretty modest, I think.
“Another theme that’s come out is companies are not being rewarded for their exploration success in the gold sector at the moment.”
The Lowell Resources fund holds shares in PGO, SXG and FG1, who are mentioned in this article.
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.