Gold stocks post solid gains as forecasters tip the metal’s price to recover

9th August 2018
Tim Treadgold

Gold was missing in action during this week’s big mining event, the annual Diggers & Dealers forum in Australia’s gold capital, Kalgoorlie, but that might not be for much longer as gold’s traditional price drivers return.

Down 10.3% to $US1214 an ounce since reaching a 12-month price high of $US1354/oz in January gold has incurred a technical price correction, though perhaps not for much longer, with some of the local leaders setting new records even as the underlying gold price has fallen.

Northern Star, for example, traded up to a 12-month high of $7.57 on Wednesday after its time on the podium at Diggers, plus a mine-site visit for analysts that highlighted the growth potential of the stock, which added 31c during the week to close at $7.50.

Evolution also had a good Diggers week, putting on 11c to $2.94 despite the gold price shedding $US3/oz during the three-day conference.

The biggest factor weighing on gold has been the strength of the US dollar, which has been boosted by that country’s strong stock market and a perception that the US is winning its trade war with China.

But, as will become clear in the next few months, no one wins a trade war and while China is under pressure now, it will recover, largely by stimulating its domestic economy which is why another commodity, iron ore, had an excellent Diggers week, with the price of high-grade ore rising to $US68 a tonne.

The iron ore price is tipped to stay high for some time as China tries to boost steel output even during its annual winter slowdown, helping a number of miners gain ground, including Fortescue which added 10c to $4.40.

Gold, however, looks to be the metal to watch given its potential to claw back lost ground.

Murenbeeld & Co, a Canadian-based research firm, told clients this week that gold is the “ultimate contrarian” investment. “You may not want to buy it now, but it’s a good time to look at it,” the firm said.

Interestingly, a much more conservative organisation, ANZ Bank, agrees with Murenbeeld, telling clients earlier this week that “a reversal in gold prices is in the offing, as speculation of a trade war and Iranian sanctions are turning into reality”.

Gold loves a crisis and there appear to be a few on the horizon.

ANZ supported its pro-gold case by noting that record short-sold positions in gold “strengthen our conviction of a price recovery in the second half (of 2018).”

The Diggers conference did not deliver any real surprises for investors, but it did lay the groundwork for interesting future events, such as:

  • A promise from Canadian geologist Quinton Hennigh that he will soon provide a detailed explanation for the presence of seams of gold nuggets in the Pilbara. Critics can hardly wait.
  • Significant increases in exploration budgets and an apparent lack of interest in takeovers thanks to recent studies which show that most merger and acquisition activity destroys value.
  • Greater clarity on the state of the lithium market, which is split between believers of over-supply and those who believe there is not enough to satisfy the battery sector.
  • Clarification of the signals emanating from the copper market, with the metal known as Dr Copper flagging a deep economic downturn, and
  • The emergence of a new positive force for metal prices, worksite unrest, as strike action expands in Chile’s copper mines and starts in Australia’s alumina industry.

Apart from activity in and around the Kalgoorlie conference, there were a number of other news events, though most share-price moves were modest, up or down, including:

  • Stanmore Coal rising to a 12-month high of 92c on Wednesday as investors returned to a politically-incorrect, but remarkably profitable, part of the Australian mining sector. The stock closed yesterday at 90c, up 1700% on its 5c price of three years ago, and 136% up on its 38c at this time last year.
  • New Hope was another coal stock to deliver a reminder that coal is the country’s second most valuable export and that the price of coal is rising, not falling as predicted by its detractors. On the market, New Hope added 52c (17%) over the week to close at $3.64 after it announced the purchase of another 40% interest in the Bengalla coal mine, taking its rise this year to $2.09 (133%).
  • Venture Minerals add 1.2c (65%) to 3.2c after reporting the discovery of disseminated and massive sulphides (often the host rock of base metals) during drilling at its Thor prospect in the south-west of WA.
  • Bryah Resources rose by 3c to 13c after announcing that deep drilling for copper and gold had started at its Jupiter prospect in the remote Bryah Basin of WA.
  • Echo Resources suffered a sell-off despite reporting robust economics in a bankable feasibility study into its Yandal gold project in WA which could see the production of 746,000 ounces over an 8.5-year life at an all-in sustaining cost of $A1273 an ounce for a two-stage development. On the market, Echo shares fell by 5c to 18c.
  • Matador Mining added 7c to 34c after reporting a maiden resource of 750,000oz of gold at its Cape Ray project on the Canadian island of Newfoundland.
  • Sandfire Resources added 29c to $7.74 after signing a binding agreement to acquire a 30% stake in the Springfield copper project from Talisman Mining, which added 1c to 28c.
  • MacPhersons Resources reported fresh gold assays from drilling at its Boorara project near Kalgoorlie with a best hit of 17m assaying 4.49 grams a tonne. On the market, the stock added 0.5c to 9.5c.
  • New Century Resources reported the start of operations at the born-again Century zinc mine in Queensland, initially adding 6c to $1.26 before easing to close at $1.20, down 3c for the week, and
  • Altura Mining added 2c to 28c after announcing that it had rejected a proposed change-of-control transaction which was first reported last March. The company said it preferred its current structure as it commissions its Pilgangoora lithium mine.

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