• Gold miners have lost traction as green-tinged metals like lithium and rare earths snare investors’ focus
  • But miners and experts think the fundamentals for bullion remain strong
  • Could opportunity await for punters willing to show patience in gold explorers?

As battery metals like lithium and rare earths take the focus of investors, gold miners and explorers have arguably struggled for traction since the world re-emerged from the pandemic with a new, green-tinged outlook.

That is despite the fact that gold prices, at US$1865/oz and over $2700/oz yesterday, are relatively unchanged from the start of the post-Covid era.

While IPOs in 2021 were heavily gold focused, with 36% of the 108 new resources companies on the ASX hunting the precious metal, last year’s smaller cohort of 54 listings revealed the shifting sands for investor interest.

Of those just 11 were goldies, Canaccord Genuity analyst Paul Howard said in his keynote address at yesterday’s RIU Explorers Conference, or 20%, with an equal number in copper and lithium.

Inflationary pressures are one reason gold miners have failed to light up the market. AISC margins hit a record level in 2021, but anecdotally, Howard said, cash generation had fallen significantly in 2022 amid the tightening noose of rising labour and diesel costs.

But many analysts, explorer and miners say gold juniors are now undervalued against what should be a strong set of fundamentals for gold explorers and producers.

“I think interest has definitely flowed through to the battery metal stocks, but the fundamentals for gold are pretty strong,” Rob Waugh, managing director of WA gold explorer Musgrave Minerals (ASX:MGV) said.

“The uncertainty in the world, talk of recession and inflation is increasing.

“That’s always a good sign for gold long term. So we’re pretty bullish on gold for 2023 and at the moment, gold stocks are reasonably priced.

“So you know, the rule hasn’t changed … you buy low, you sell high.”


Why is gold unloved?

Gold stocks have failed to curry favour with investors outside of stellar results, with even positive resource announcements viewed as relatively hum drum.

Resources expert Hedley Widdup from Lion Selection Group (ASX:LSX) has identified three broad reasons why gold stocks aren’t lighting up the market at the moment.

“The gold price has sort of firmed rather than run away and I think the first problem which a lot of gold explorers have is that they’re one of a lot,” he said.

“If you look through the 600 or so explorers listed on ASX, about 150 of those would be gold.

“So how do they stand out? You know, they’re just like all the rest, and there really is a lot of them. So standing out from that large, large crowd is one issue for them.”

Another problem is that younger investors have concerns about gold’s primary status as a store of wealth. To them, metals that play a role in the green energy business like lithium have a tangibility gold doesn’t.

That is despite real world gold demand hitting an 11-year high in 2022 according to the World Gold Council, with central bank buying soaring to a 55-year record.

“I don’t agree with it, but there is a growing sort of consensus or thought around the legitimacy of gold as a commodity,” Widdup said.

“And it’s always been a bit different to the other commodities in that it’s a currency as much as a commodity. At the moment a lot of the big gold majors are battling with this.

“It’s a financial instrument to some people. So I suppose to younger investors, particularly, what’s the point of gold? If they can’t see it they’re probably less likely to prioritise a gold play.”

Lastly, gold prices have yet to really see the breakout many analysts have predicted.

“If you’re in a gold environment, where you go from 18-something to 19-something per ounce, gold isn’t really ripping away and like I said, it’s firmed, but I think you can still go to US$2200/oz, you’d see a lot of those explorers start to pop on the basis that people might be happy to speculate it again,” Widdup said.

Is a breakout likely? Widdup says gold stocks remain depressed, which creates an opportunity for investors who believe in the thematic. He says it is not inflation necessarily, but the direction of real interest rates to look out for.

Even after last year’s hikes, real interest rates remain negative.

“I think inflation contributes to real interest rates, and it can push those negative, particularly when inflation is strong and interest rates haven’t caught up yet,” Widdup said.

“So we’re in a negative real interest rate environment and that is what’s good for gold.

“So the question is, does inflation persevere and rates drop away or stay stagnant? If they do, great for gold. If rates go hard, I think you’ll probably see gold go sideways.”


Can gold stocks stand out from the crowd?

$112 million capped Musgrave is up 137.5% over the past five years, rising in value as it amassed a 927,000oz gold resource through drilling at its Cue gold project.

Its standout discovery is the near surface Break of Day trend, which contains 982,000t at 10.4g/t for 327,000oz.

That is an astounding grade in this day and age, when it is common for gold mines to produce at 2g/t and below.

Like many gold stocks, MGV’s last year has been less impressive, with its share price dropping almost 39% despite a volatile but relatively unchanged underlying gold price.

“The actual selling price in Aussie dollar terms hasn’t really changed over the last two years, but gold stock prices are almost half what they were two years ago,” Waugh said.

“So in those relative terms, it’s probably a reasonable time to buy.”

He said deposits like Break of Day, which could also be attractive to a larger company looking to improve and update its portfolio, would stand out in inflationary environments.

“There’s not too many really high grade near surface undeveloped gold stories in Australia,” Waugh said.

“So we’re a modest size, but we’re very high grade and high grade relates to margin.

“If you can get a good margin, you can weather the highs and lows in the gold price environment. So that bodes well for us, and there’s not too many stocks that are equivalent.

“We hope to be able to get a PFS out in late March and show to the market the value in the company and to see the upside and the share price potential going forward.”


High grades in focus

Black Cat Syndicate (ASX:BC8) managing director Gareth Solly is another gold executive who believes gold will find a time to shine in the current macro environment.

“(Investors) get what’s in their face every day, save the planet, everything else, (with) lithium, but gold’s always going to be there,” Solly said.

“It always has been and I think it’ll be there well into the future.

“There’s a store of value in gold and in inflationary environments like we’re going into gold will be one of the few things that does actually hold its value.”

Black Cat plans to make an investment decision this year on the restart of the Paulsens gold mine in the Pilbara.

The project on which previous owner Northern Star Resources (ASX:NST) first built its legacy, a resource update this week increased the underground bounty at Paulsens by 190% to 258,000oz at 10.8g/t.

That included a 500% increase in a new high grade mining area called the Gabbro Veins to 86,000oz at 11.9g/t.

Added to the Coyote Central deposit at the Western Tanami project, which contains 346,000oz at 14.6g/t, BC8 has some of the highest grade unmined resources in WA.

While the gold market over the past six months has been tough, Solly says those high grades and the installed infrastructure at the mines, purchased for $44.5 million in a deal with $14 billion capped NST last year, means they remain highly attractive development prospects.

Black Cat paused plans to develop its 1.3Moz Kal East gold project last year due to concerns about getting the labour to man a major construction project in a period of shortages in WA’s construction labour market. But Paulsens and Coyote could be different stories.

“The problem around Kalgoorlie is the construction and labor market. And that’s not really going away anytime soon, and that’s a across WA but it’s particularly prominent around Kalgoorlie,” Solly said.

“So that’s the benefit of having Paulsens and Coyote that have all the infrastructure already installed, they just need to be brought back to life.

“And they do have higher grades. So they should have some good margin there and it’s easy for us as a junior to kick them off.”


Calling for patience

Gold deposits, like Rome, are not built in a day.

Allan Kelly, who made his name as a geo at Western Mining Corporation before bringing the high grade Andy Well discovery near Meekatharra into production in the early 2010s with Doray Minerals, says discoveries can take time to make.

He says investors need to be patient to see the rewards of early stage exploration.

His current company Miramar Resources (ASX:M2R), where Kelly is executive chairman, owns the Gidji and Glandore East gold projects in close proximity to Kalgoorlie, with other nickel, IOCG, copper and rare earths prospects at projects across WA.

“We had a really good response to the IPO but then after that, you’ve seen this surge in lithium and rare earths and gold’s just been completely forgotten about,” Kelly said.

“There were some really good comments by Paul Howard this morning, talking about outside the mining industry, if you look at what’s going on around the world, you’ve got inflation, cost of living and everything, that’s like the perfect environment for gold prices. And the gold price at the moment is actually really good.

“Talking about Doray, when we started putting together the Doray projects in 2009, I think the gold price in US dollars was about 600 bucks an ounce.

“Now you are talking about 2600 Australian. It’s a fantastic gold price both in US and Aussie dollars, but you’re just not seeing any reward as a gold explorer.”

Kelly says investors sometimes need to show patience, rather than jumping from trend to trend looking for a quick win.

“If you’ve got some patience, I think there are some bargains at the moment especially in the gold space,” he said.

“For us, it will be a classic example. We’ve got two really good projects near Kalgoorlie, close to existing infrastructure and both of them we’ve had really good gold results from, but I think we need to be patient.

“Exploration, in my experience, it takes time to develop a story and to test an idea and to collect the data.”


Musgrave Minerals (ASX:MGV), Black Cat Syndicate (ASX:BC8) and Miramar Resources (ASX:M2R) share prices today:


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