Spring could bring green shoots for gold stocks, with beaten-up juniors offering lip-licking leverage

The turn-around underway at Gascoyne illustrates this upside while Ivory Coast gold mine developer Tietto is also in line for a re-rate. Plus, Bellevue Gold insulates itself against rising costs.
21st July 2022
Barry Fitzgerald

The 18% fall in the US dollar gold price since its high in March of $US2,078/oz in response to rising interest rates, but despite rampant inflation and emerging pressure on the greenback, has knocked the stuffing out of the Aussie gold sector.

The macro negatives come on top of the cost pressures across manpower, energy and supplies, making for a perfect storm. The only positive has been the offsetting fall in the Aussie dollar to sub-US70c.

It’s too early to call gold’s weakness over, though recent softness in the US dollar has raised hopes that the US gold price can at least hold at around the $US1,700/oz level, which would make the Aussie price a nothing-to-complain-about $2,460/oz.

The heat coming out of inflation as suggested by tumbling commodity prices, and the normalisation of supply chains and labour availability, suggests the arrival of Spring could well see green shoots appear for the sector.

It all means that there is case to be made that the trashing of the gold stocks since March has been overdone in a major way. And that is without the gold price doing anything heroic either this year or next.

It is why RBC Capital has a $26 target price on Newcrest (NCM), 35% higher than its current market  price.

And its why Credit Suisse has a $9.50 price target on Northern Star (NST), 36% higher than the market price, and why Canaccord has a price target on Evolution (EVN) of $2.70, 16% higher than the market price.

Those price targets were issued this week following the release of June quarterly reports from the companies.

Because of the scale of their operations, achieving those targets will depend on a supportive gold price from here on, and the unwinding of the cost pressures from lower input costs and greater  availability of labour.

But the best leverage to a green shoots scenario for the sector rests with the junior gold stocks. That’s because they get to bank the green shoots scenario, as well as game-changing events that can move the dial in a big way because of their more modest market caps.

Newcrest could announce a 2-5 million ounce gold discovery tomorrow and the market would go ho—hum. Put that same discovery inside a junior, and no one would be worried about what gold the gold price was doing.

Gascoyne Resources (ASX:GCY): 24c, $102m.

Simon Lawson’s military-style haircut has been on show at investment seminars and zoom-presentations all over the place of late.

It’s because the geologist who picked up a few tips on how to run a gold mining company at Northern Star in its formative years reckons he is on to a game-changer at Gascoyne (GCY), where he has been MD since November last year.

Lawson came across to Gascoyne from Firefly Resources, which was acquired by Gascoyne for its Melville deposit (240,000/ozs at 1.47g/t gold) some 100km by road – if there was a road - from Gascoyne’s 2.5mtpa mill at its 70-75,000oz a year Dalgaranga mine in the Mt Magnet region of WA.

He was meant to become a non-exec but became MD, which says something. To his credit, Lawson parked up thoughts of pushing a 100km haul road through the bush to bring Melville ore to Dalgaranga.

It is still there and will be incorporated over time. Lawson’s preference was to divert more dollars into near- mine exploration, backing the ideas of the operation’s exploration team, which had been starved of capital.

There has been near instant high-grade success at Gilbey North, which is a stone’s throw from the existing open cut. Last month’s report of a 54m intersection grading 6.55g/t gold (including 12m of 20g/t) certainly got the interest up.

And then there was this week’s release of a batch of high-grade results and good widths, including 53m grading 3.59g/t. A maiden resource in in the works.

“Importantly, recent drilling has revealed that the shallow high-grade mineralisation extends from surface in two different directions and is starting to show signs that the regional potential could be much bigger than even we could have imagined,” Lawson said.

The potential upside for higher-grade feed than the 0.85g/t-0.9g/t dirt that currently makes its way to the mill is what excites. Theoretically, lift the head grade to 1.1g/t to 1.2g/t and you’re looking at a 100% lift in margins.

There is also the value lift that would come from an increase in life of mine.

They are all points well made by Chris Baker at Bridge Street Capital after the report of the 54m at 6.55g/t last month.

Gascoyne last traded at 25c for a market cap of $106m.

Ahead of the near-mine exploration excitement, Baker had a NPV of 52¢, based on mining to the end of FY2024, with the mill to continue through to the end of FY2027 on low-grade stockpiles (0.6g/t).

“However, we do flag significant upside to our estimate of Gascoyne’s valuation. If we assume that mining can continue to the end of FY2027 at a relatively low strip-ratio and the mill could average perhaps 1.2g/t feed (equivalent to production of about 90,000oz per annum) our NPV could increase by about 50% to 75¢,” Baker said.

Baker was not alone in wondering why the market had yet to get behind the emerging near-mine exploration upside. Yes, Gascoyne did go into receivership in 2019 but came out of that in 2020 and is now debt-free and sporting $30m cash. And it’s got Lawson running the show.


Ivory Coast gold mine developer Tietto (TIE) is another junior in line for a re-rate independent of what the overnight gold price has done.

The stock last traded at 44.5c which is well short of the 60c it commanded before the gold price re-treated.

But with first gold production from its Abujar gold mine (260,000ozs in the first year) fast approaching in the December quarter, a re-rate is overdue.

As it is, the stock has been edging up in recent days anyway.

And it has nothing to do with first production being around the corner, or some impressive high-grade hits reported recently from infill drilling of the main Abujar shear zone.

It comes back to the July 14 substantial shareholding notice covering 5.19% of the stock from Chinese gold producer Zhaojin, a group that has expressed interest in the Australian gold scene in the past.

The thinking is that Zhaojin has not bought into Tietto for future dividend flows. Tietto would not be the first or last Aussie junior to come to the attention of Chinese interests looking for walk up starts to become West African gold producers.

But any takeover move would probably need to start out at around 70c, if one emerges at all. No guarantees on that. There’s more confidence in the re-rate ahead of first Abujar production.


Bellevue (BGL) recently narrowed a start to first production from its namesake mine in WA to the second half of next year.

So technically, it too is now in the re-rate phase. Not that its share price reflects as much, not yet anyway. It has been bashed down to 69c from around the $1 level in March.

Because of its rich grade, Bellevue is a low capex development that will be capable of producing 200,000oz of gold annually at an all-in sustaining cost of $A1,000-$A1,100/oz. It is lowest quartile stuff.

The low-capex credentials flows from underground access provided by the historic mining operation, and the small 1mtpa scale of the treatment plant. The company has also insulated itself from industry cost pressures by having 90% of the pre-production costs locked down in contracts.

The latest contract award was for the $88m processing plant with GR Engineering. In a nice bit of risk-sharing and incentivisation, up to $7.5m of the contract can be paid in Bellevue shares.

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