Old prospects attract new attention as gold goes up
Andrew Burrell From:The Australian May 21, 201112:00AM
PERTH mining veteran Peter Salter was living in Hong Kong last year when he took a spur of the moment decision to return to Australia to cash in on the soaring gold price.
"One morning I just woke up in Hong Kong and said I've got to get back into it," recalls Salter, who has since overseen the $8 million float of a company exploring for gold in remote scrub about 420km northeast of Perth.
Salter left Perth in 2005 after the Australian Securities & Investments Commission banned him from serving as a director for three-and-a half years for breaching the Corporations Act over his role in two failed companies.
The prospector is just as well known around West Perth's resources community for founding Anaconda Nickel in the early 1990s and then famously falling out with its then chief executive, an exuberant young mining promoter called Andrew "Twiggy" Forrest.
In one celebrated incident, he even punched Forrest in the face after a four-hour lunch at a Chinese restaurant in the mid-1990s. (He admitted the assault but was later exonerated in court after the magistrate found Forrest to be " a most unreliable witness".)
Salter is now managing director of Paynes Find Gold, one of scores of junior explorers rushing to peg new ground as the gold price hovers at near-record highs of about $US1500 an ounce, promising cash margins that were once unthinkable.
His return to Perth after five years in exile highlights how the new gold boom is restoring the fortunes of some colourful old prospectors and prompting companies to revive abandoned tenements and push into more remote regions in search of the precious metal.
The gold price may be slightly down from its peaks a few weeks ago, but most analysts expect investors to continue to seek the security of gold for some time amid the lingering weakness of the US economy, financial jitters in Europe, rising inflation in China and political turmoil in the Middle East.
Prominent US hedge fund manager John Paulson -- whose multi-billion-dollar fortune is largely tied up in funds that buy securities linked to gold -- predicts the price of the metal will hit $US4000 an ounce within two years.
Deutsche Bank is more cautious, forecasting $US2000 an ounce within eight months.
The extreme gold bulls are talking about a price of $US8000 in coming years.
But legendary investor George Soros sapped the confidence of some investors this week when it was revealed that one of his hedge funds had sold most of its gold holdings. Soros had aggressively accumulated gold for two years.
MineLife senior resources analyst Gavin Wendt says the conditions that have driven up the gold price over the past two years will continue, at least in the near term. "If anything, the situation with the US economy is getting worse."
That view is backed up by industry veterans such as Ian Murray, executive chairman of Gold Road Resources, a listed Perth-based explorer that has generated some positive drilling results from its Yamarna project in WA's eastern Goldfields.
"I have been in the gold industry for 15 years and I've recognised the failings of the fiat monetary systems," he says.
"So there will always be a flight to quality.
" You can't look at any of the other currencies now, so it's gold and silver for the future."
Murray reckons the exploration boom in the WA Goldfields and in other parts of Australia is the closest thing the industry has experienced to the gold rushes of more than a century ago.
But today's explorers, buoyed by record prices and aided by new technology, are starting to push into more remote areas than the prospectors of the 1890s.
Gold Road, for example, is drilling in the largely unexplored Yamarna belt, which lies 140km east of the remote town of Laverton in WA's Goldfields region.
"The old-timers couldn't carry enough water to prospect for any significant length of time in that region," Murray says.
"Now we have a camp out there and modern drill rigs, so technology has made it easier to explore and to provide home comforts."
Wendt nominates Gold Road as one of his favourite gold stocks and notes the company is exploring close to the emerging Tropicana gold project being developed by Anglo Gold and Independence Group and touted as one of the best discoveries in Australia in a decade.
Alex Passmore, head of metals and mining at Patersons Securities in Perth, says investors with a focus on WA stocks should also be considering Catalpa Resources (which last week received a $350m takeover bid from St Barbara), Integra Mining, Focus Minerals and Regis Resources.
Passmore points to Australian Bureau of Statistics data that show gold exploration has surged from $90 million per quarter in June 2008 to $170m per quarter in December.
Until 2009, he says, the Australian gold sector was weighed down by domestic cost pressures driven by rapid rises in other commodities.
As a result, many were forced to explore offshore, particularly in Africa.
But for the past two years, gold has been catching up to other minerals as the price has soared from $US800 to $US1500 an ounce.
Murray of Gold Road Resources says there will be continued constraints on the gold sector mainly due to the skills shortage as well as the rising price of equipment and steel needed to build a mine -- something he is planning to do, assuming drilling results remain positive.
"But the gold price is rising faster than those prices are going up," he says. "So we are buoyant and bullish on the gold price but we recognise the challenges that face us."
Salter, meanwhile, has been active in Perth since his return, turning Paynes Find Gold into a serious explorer.
The company has started a fresh drilling program to transform a series of disused mines at Paynes Find, 420km northeast of Perth, into a single open-pit gold operation.
In the old days, teams of men used picks and shovels underground in back-breaking work in the area. "Now we can open-cut the lot from the comfort of air-conditioned dozers," he says.
Salter is nothing if not bullish about the price of gold. He says nobody can accurately forecast what the price will be in two years, when he plans for Paynes Find Gold to be in production. But he says "don't laugh" at suggestions the precious metal will have risen to $US5000 an ounce by then.
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FML Price at posting:
7.5¢ Sentiment: Buy Disclosure: Held
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