The big boys are front-running rate cuts, which is great news for gold

Leverage exposure to the rate cycle can be found in the likes of Red 5, Bellevue and Rox. And Battery Age maturing nicely ahead of lithium assays.


AustralianSuper’s chief investment officer Mark Delaney did not talk up the gold price during the week when he had fireside chats with the financial papers on how he was positioning the $300 billion super fund.

But he might as well have given his revelation that after posting a pedestrian 8.22% return in its default balanced fund for FY2023, the gorilla of the super industry had gone defensive by hiding away 18% of his member’s funds in bonds, up 70% on this time last year.

As summed up by The Australian, his overarching theme was that interest rates are peaking. This is what the gold bugs have been waiting for in the expectation that the turning of the interest cycle will power the gold price ahead before long.

Delaney said he did not think that “anybody anticipates that rates are going a hell of a lot further from where they are now”.

“For me, fixed interest looks more attractive when rates are getting close to a peak. So we’re buying into it,” he said.

It was warming stuff for the gold bugs and investors in gold stocks alike, with the latter looking to take advantage of the sideway drift in share prices since May.

Mind you, gold stocks have been strong performers since the gold price began a recovery from the $US1,620/oz lows of last September/October to more than $US2,000/oz in April/May.

Fears interest rates would remain sticky and perhaps go higher still has pulled the price back to $US1,918/oz.

But if AusSuper reckons that rates are topping out and it’s time to buy fixed interest, the brake on the gold price heading higher could soon be lifted. Leading gold equities have come off about 15% since peaking in May.

So it won’t be a surprise if the gold stocks get chased back to higher levels in anticipation of gold shaking off the interest rate bogey and doing what it does best by responding to fear factors, of which there are plenty.

Goldman Sachs is a fan of the fear factor, saying it was set to drive gold prices higher.

“The team see ‘fear’ as the key medium to short-term driver for gold. While there is a close link to growth expectations, many risk factors are relevant in this context,” GS said.

“In addition to real rates, debasement risks, sovereign balance sheet risks, geopolitical risk and other market tail risks matter because gold is considered a safe-haven asset.

“As uncertainty rises, preference shifts towards more gold in the portfolio, driving prices higher. Generally, our team have found in their framework that fear is a far more important driver of gold investment demand than the opportunity cost of holding gold, as measured by short-term US rates.”

GS finished up tipping gold prices would rise to near record levels of $US2,067/oz in the December quarter and that a record annual average of $US2,133/oz was possible in 2024.

Its top picks were Evolution (ASX:EVN), Regis (ASX:RRL) and Gold Road (ASX:GOR). Fair enough, but leveraged opportunities to the potential for gold to take off are found further down the food chain, or in situational plays.

Red 5:

Situational – on two fronts - best describes the market in Red 5 (ASX:RED).

The company is still earning its stripes as a 200,000 ounce-a-year producer from its new King of the Hills operation near Leonora in WA.

It produced its first gold in the June quarter last year and by mid-December, commercial production was declared.

Lots of credit to the company for delivering the $226m project on time and budget given the backdrop of COVID, labour and supply challenges.

But on the way through the market did not take kindly to equity raisings to deal with delays in the ramp-up to commercial levels because of tonnage and grade shortcomings.

All of that was of a short-term nature, which came through in this week’s report that after a strong June quarter, Red 5 delivered 102,572 ounces for the June half within guidance of $A1,750-$A1,950/oz (current price $A2,885/oz).

Get this though, the stock actually fell. It was 20.5c on Tuesday, the day before the release of the production update. It has since weakened to 18.5c for a market cap of $640m.

Clearly the market wants to see the upwards trend continue for a few more quarters before re-rating the company to a level that better reflects its 200,000/oz-plus long-term production profile from a shiny new plant close to Leonora.

Assuming another strong performance in the current September quarter, things could well gel in terms of a re-rating in the December quarter, particularly if the gold price has shaken the interest rate shackles by then.

The other situational aspect to Red 5’s underdone rating is the on-going rationalisation of the Leonora region.

Red 5 had talks with St Barbara (ASX:SBM) but Raleigh Finlayson’s Genesis (ASX:GMD) is now the proud owner of the Gwalia mine and its small and high-cost mill.

Red 5’s mill is big, expandable and low cost. So if there is further rationalisation in the region, the company is likely to feature – either as an acquirer once KOTH is on song, or as a target for Finlayson or others.


Talking about the Gwalia mill being small and high-cost, its biggest issue is the ageing and deep Gwalia mine not being able to keep up with a full mill feed.

St Barbara took to taking in ore from third parties for toll treatment. It continues under the new owner Genesis, which has just struck a toll treatment deal with Bellevue (ASX:BGL).

Rather than Genesis, today’s interest is in the neat derisking exercise it is for Bellevue ahead of its main event – establishing itself in the December quarter as Australia’s newest gold miner, with its high-grade ore feed from multiple underground lodes to be run through its own plant, which will be good for annual output of 200,000oz at an all-in sustaining cost of $A1,000-$A1,100/oz.

Ahead of the main event, Bellevue has had to mine the Vanguard open-pit to make way for the operation’s tailings dam. Instead of loading the lower grade ore on to a stockpile for treatment later in the mine’s life, 100,000t of ore grading about 3g/t gold (9,645 ounces contained) is to be trucked 170km south on the Goldfields Highway to the Gwalia mill.

It should be a nice little earner for Bellevue ahead of the main show at its namesake mine – the mining of multiple high grade lodes – getting into full swing.

The truckability of 3g/t dirt to the Gwalia mill and other regional mills, and the higher-still grade of the Bellevue lodes, goes to the expectation that Bellevue could well see some M & A activity before long.

It was here back on June 16 that comments by Bellevue boss Darren Stralow on the subject were reported.

Asked if the company was a target, Stralow said it should be. Bellevue was trading at $1.16 at the time and has been uniquely strong since. It closed on Thursday at $1.41. Looming full scale production and the derisking toll treatment agreement have pushed things along.

But there is also something in there for M & A chatter (Northern Star and Gold Road are most mentioned rather than Genesis), and the prospect that the gold price GS envisages for 2024 might just happen.

Rox Resources:

And continuing the talking about theme, there was an interesting research note on Rox Resources (ASX:RXL) by Rawson Lewis analyst Mike Harrowell during the week.

Apart from placing a 75c price target on the now 100% Youanmi gold project owner compared with Thursday’s closing price of 29.5c, Harrowell said the Youanmi story is similar to Bellevue.

“Both were historically high grade underground mines that closed due to low gold prices rather than lack of mineralisation,” he said.

Using Youanmi’s 2022 scoping study as a valuation anchor of 57c at a gold price of $A2,893/oz, Harrowell makes an upside-from-there argument based on the strong news flow across a number of fronts at the project.


It was mentioned here on June 23 that lithium exploration by ASX-listed lithium explorers in Ontario was stepping up after agreements with First Nation people were done and dusted.

Battery Age Minerals (ASX:BM8) was one of them and was trading at 45c. It has since moved to 49.5c in response to an encouraging start to its maiden drilling program at its Falcon Lake project, with 10 of the first 13 holes returning spodumene-bearing pegmatites over good widths.

A full judgment by the market will come in a month or so when assays results become available. And as an aside with this one, its recent IPO included the Bleiberg project in south Austria, a region with a long history of lead-zinc-germanium production.

The last metal mentioned there became more interesting than it was during the week thanks to our Chinese friends announcing export restrictions on some germanium and gallium products used in computer chips and other strategic things for national security interests.

It was seen as a tit-for-tat response to the US and others making western technology all that much harder for China to secure.

Critical Resources (ASX:CRR) was the other Ontario lithium explorer mentioned here on June 23 when it was trading at 4c a share. It has since taken off to 5.3c.

For good reason too as drilling at its Mavis Lake property has just returned a 74.4m intersection of spodumene-bearing pegmatite.

Assays are pending but the hit goes to the point that although the company has already drilled up a handy resource of 8Mt at 1.07% lithium in quick fashion, only a fraction of the project area has been drilled to date.

Upcoming Events

17th February 2022
Investor Webinar: Gateway Mining
Gateway Mining (ASX: GML) Managing Director Mark Cossom will discuss recennt highlights from the Company's Gedgee Gold Project in Western Australia and its exploration strategy for 2022.