WITH tough times come opportunities – not least in the much maligned gold sector. Perhaps the sector’s perennial under-performance is about to change as gold prices hold up better than most amid global market turmoil. Here are Strictly Boardroom’s eight indicators of market value. Those junior gold companies that qualify on all counts are encouraged to contact Allan Trench to let him know – he might even get his cheque book out.
While gold has performed better than most metals in the recent volatile times, gold stocks have not been spared in the market downturn.
That adds up to potential opportunity, with some gold companies set to be re-rated if their assets perform. A string of corporate failures at the junior end of town has no doubt left the market nervous – but harsh lessons, one would hope by now, have now been learnt.
So for those readers contemplating dipping their toe back into the market in search of golden bargains, here’s a “from the hip” list of the ingredients to look for.
But having compiled the list SB has yet to apply it to the global gold market of emerging juniors – so perhaps you can do that for me.
Please let me know which companies your scribe should be writing out cheques for.
To the list:
(1) A secure future: First exclude the “flash in the pan” potential gold miners; look for resources to top the magic million ounce mark.
(2) Good grade: They say grade is king – Well it certainly helps. A recent analysis put the average gold grade among Australian miners as low as 1.7 grams per tonne Au. Something that is at least better-than-average in grade terms should get preference.
(3) Below the radar: Market value is always a consideration. Companies that have escaped market attention will now have enterprise values per resource ounce of $A30 or less.
(4) Near-term ounces: Blue-sky is being discounted by the market – probably correctly in a time of capital rationing. So production and near-production stories take priority.
(5) Decent scale: Back to the “flash in the pan” thinking, annual production should be material – or on the way to it. Material production is in the order of 30,000 ounces a year and above for juniors.
(6) Manageable location: Geography remains a key factor. Chosen carefully, gold investments can act as a hedge against risk. So why add sovereign risk by choosing a jurisdiction without a history of successful gold developments? Potential Zimbabwean gold mines won’t make the Strictly Boardroom short-list.
(7) Focused management: Everyone claims to look for good management in making investments – while an investment truism it has to be a consideration. “Ego-friendly” gold miners score points in Strictly Boardroom’s notebook.
(8) Re-rating on the cards? Finally, there has to be a reason for any investment to be under-valued. Ideal investments are those where the reason is identifiable and set to disappear soon. The presence of willing (or even distressed) sellers on a company’s share-register creating a temporary overhang is one such example.
That’s about it. So does the gold company you are thinking of qualify on all counts? If so, you know who to call – not Ghostbusters, Strictly Boardroom!
Good hunting.
Allan Trench is Adjunct Professor of Mine Management & Mineral Economics, Western Australian School of Mines and is a Non-Executive Director of Pioneer Nickel, Navigator Resources and Legend International Holdings. He is Regional Director Australasia at CRU Strategies, the consulting division of independent metals and mining
ALY Price at posting:
4.0¢ Sentiment: Hold Disclosure: Held
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