Talk of gold price recovery puts developers in takeover crosshairs

Emerging producers like Bellevue could be on the menu for the big producers, ditto for Peel in the copper space. Stavely shareholders soak up SPP and Creasy punts on Galileo neighbour Greenstone.
4th August 2022
Barry Fitzgerald

There was not much to come from Diggers & Dealers during the week that could be classified as needle-moving stuff.

There was though confirmation along Elon Musk lines that being in lithium was a licence to print money and that the uranium sector (led by Paladin:PDN/Boss:BOE) was fast maturing as a serious investment destination in the critical materials space.

The overall mood of the 2,600 delegates that managed to brave Kalgoorlie’s high winds and Qantas/Virgin check-ins was said to have been mildly buoyant.

Being mildly rather than full-blown buoyant was put down to the buffeting of the gold price following its fall from a peak in March of $US2,078/oz to the recent low of $US1,683/oz.

Gold companies are still key players at D & D, so the description of this year’s event being mildly buoyant no doubt reflects the rebound in the gold price to this week’s $US1,770/oz.

Hats off to Evolution (EVN) executive chairman Jake Klein at D & D for doing his best to rev up the crowd – and the market in Evolution - with a big call on gold.

Evolution was a $4.50 stock back in March but got as low as $2.28 on July 19 as a result of the gold price fall and a disappointing June quarterly report released on July 21. It has since worked its way back to $2.66.

While Klein is busy sorting out the issues disclosed in the June quarterly, he is expecting a big tailwind to arrive for the company, and the rest of the sector, next year.

He reckons that this time next year, gold should be between $US2,000/oz and $US3,000/oz. Happy days.

“There has been a fear factor over the last six to nine months. The Fed has come out swinging and talking very strongly about their intent to raise rates until inflation is under control. I just don’t think that’s possible,” Klein told reporters.

If Klein’s view is shared by others in the industry, stand-by for a wave of merger and acquisition activity where the bigger companies move on the developers and explorers with 1m-plus ounce gold resources with upside.

The developers and developers are looking vulnerable to low-ball bids as they have to enjoy much of a recovery from their smashed levels from the March gold price fall, notwithstanding the gold price rally since.

The most entertaining award at D & D goes to Bill Beament of former Northern Star (NST) fame.

Beament now heads up the $400m Develop (DEV) which is pursing the same business model as the $10 billion Mineral Resources (MIN) by being both a miner and a mining services contractor, with underground mining in Develop’s case a specialty.

Develop’s portfolio now includes the Woodlawn zinc project in NSW, the Sulphur Springs copper-zinc project in WA, and the mining contract for the gold mine developer of Australia’s next high-grade gold mine, Bellevue (BGL).

Develop under Beament has got off to a good start, with the Woodlawn pick-up for a song the highlight. But get this, Beament does not want Develop to grow to the point where it gets included in the ASX 100.

“"I think your investor base changes in the ASX 100 and I saw that in my previous vehicle," he told reporters.

"It's not fun in the ASX 100 - it's a different audience.’’

"Also, if you want to be that size, you're starting to talk about 3000, 4000, 5000 people, I don't want more than 1200 people, 1500 max, because you want to know everyone in the organisation."

"Value creation is when you go from 5c to $5.’’

"Once you get a bit bigger though it gets hard and your delta to move the needle gets much, much harder."

There’s that needle again, the one that was pretty much missing at D & D this year.

Peel (PEX):

The copper juniors currently share a problem affecting the gold juniors.

While they were heavily sold off in response to the recent retreat in the copper price, they have yet to clawback the lost ground in response to copper’s recovery from the lower levels.

But just as Evolution’s Klein suggested for gold, we could well be in a reset phase in copper space ahead of a return of bumper prices.

What was that S & P estimate again?

It was that the world needs to double annual copper production by 2035 if there is any hope of net zero emissions being reached by 2050. The additional 25mtpa required is the equivalent of 25 Escondidas, the world’s biggest copper mine, being brought into production by 2035.

It is not going to happen. So juniors with a copper development proposition on their hands can bank on the sort of copper prices required to incentivise more copper production.

Not that you would know that from the recent price performance on the copper juniors. Peel (PEX) is an example. It was a 25c stock earlier in the year but is now back at 18c.

At D & D, the company’s technical director Rob Tyson made the call that it would be hard to find a better undeveloped copper deposit in Australia than its Mallee Bull deposit near Cobar in NSW (6.76Mt grading 2.6 copper equivalent).

No reaction in the share price since Tyson’s presentation. But there are those listening. Canaccord has a 60c price target on the stock.

Stavely (SVY) 18c:

It could be that the copper thematic – and the leveraged power further exploration success can deliver - is better understood by investors in junior copper stocks than the current market suggests is the case.

Evidence of that came through during the week from Stavely (SVY) with its report of something that is rarely, if ever, seen – the $5.3m uptake of shares in its share purchase plan compared with the $4m raised from a preceding placement to so-called sophisticated and institutional investors, both at 15c a share.

Normally it is the other way around. As it was, Stavely had expected the SPP to pull in no more than $1.5m.

Executive chairman Chris Cairns was moved to describe the SPP as an exceptional outcome. “Shareholders have sent a clear message that they recognise the substantial underlying value in our Stavely copper-gold project and the pathway we have outlined to grow the Cayley Lode resource, advance it towards development, and unlock the broader potential of the project,” Cairns said.

Greenstone/Conico:

Having said that, one that did emerge in the junior sector was served up by Greenstone (GSR) in its presentation to D & D.

There it was on page 3 – the emergence of “prospector” extraordinaire Mark Creasy with a 4.3% stake in the company, something that would not normally be disclosed under the 5% substantial shareholder rule.

It was needle-moving for Greenstone, and Conico (CNJ), because Creasy has effectively made a bet that the Callisto PGE-nickel-copper discovery near Norseman in May by his 26% owned Galileo Mining (GAL) extends 200m across the boundary in to their 50:50 their Mt Thirsty Joint Venture.

The May discovery by Galileo has been drawing comparisons with the fabled Platreef deposits on the northern limb of the Bushveld complex in South Africa.

It’s a bit early for that but enthusiasm for the discovery has nevertheless carried Galileo from a 20c stock pre-discovery to this week’s $1.10 for a market cap of $220m.

The page 3 mention of Creasy means he was the unnamed “strategic mining investor” that in June had handed over about $2 million in Greenstone’s $4.9 million share placement at the time.

Creasy won’t have to wait long to find out whether his bet that the Callisto discovery extends across the boundary into the adjoining Mt Thirsty JV property is on the money as the joint venture has kicked off a drilling campaign to find out.

It is not a simple nearology play either as the joint venture partners reckon geophysics and lithology work suggests the prospective mineralised horizon hosting the Callisto discovery extends a further 1.5km into their joint venture ground.

Mt Thirsty is home to a known cobalt-nickel deposit but drilling has rarely gone beyond 100m. The discovery hole at Callisto was at a depth of 144m.

Since the disclosure on Creasy, and the start to the Mt Thirsty drilling program, Greenstone has motored from 4.7c (it was 2.8c back in May when Galileo reported its discovery hole) to be 5.3c in Thursday’s market. Conico has moved up from 2.8c (it was 1.1c in May) to 3.5c.

So it is value creation in motion, with more to come if the joint venture hits the good stuff.  Nice to have Creasy cheering on from the sidelines.

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