A bullion trickle-down is underway, as emerging producers and explorers grab the spotlight
Gold’s retreat from near-record levels to sub-$US2,000/oz has put a stop to the re-rating of the leading gold stocks, for the time being at least.
The re-rating got going at least 10 days before Russia invaded Ukraine and was notable in that the second-tier gold stocks and developers were pretty much left behind.
But in recognition that the current gold price ($US1,983/oz late on Thursday, with volatility in response to the next war headline the order of the day) still represents a seriously elevated gold price, the second-tiers and developers are in catch-up mode.
The trickle-down effect is noticeably focused on the developers which are on their way to becoming gold producers before long.
It has long been thought that developers re-rate to higher levels as first production approaches. Canaccord put some hard numbers behind the thought in a recent research note.
It found that of the seven recent entrants to the gold production ranks on the ASX from 2018-2021, the share price of all seven increased by 19% on average in the six months before first gold and increased a further 16% in the following six months.
There were some notable under-performers that did well in the lead up to first production but then fell heavily as they failed to hit targets.
Canaccord then moved on to four developers set to produce the first gold this year – Calidus (CAI), Red 5 (RED), Tietto (TIE) and Tulla (TUL). They have been doing well in the lead up to the first production, with a further re-rating there for the taking, assuming they perform as promoted.
It stacks up as a strategy in the gold space while gold remains as volatile as it is. And finally, an earlier Canaccord note on Red 5 had it as a speculative buy with a target of 44c. It closed on Thursday at 37c.
Labyrinth Resources (ASX: LRL)
It has long been argued here that daily swings in the gold price don’t matter much for lightly-capitalised explorers.
What matters is getting on to a decent project with plenty of upside, knowing full well that regardless of $US1,500/oz or $US2,500/oz gold, there is going to be a leveraged response in the share price/market cap of the junior involved.
While a decent project with upside is an obvious pre-requisite, so too is the junior’s management and exploration team having street cred.
All that is why a little thing called Labyrinth (LRL) has popped onto the radar. It is trading at 3.8c for a market cap of $33 million.
Formerly known as Orminex, the company changed its name last November after a management change and pivot from WA to the high-grade gold riches of Quebec’s Abitibi gold belt, home to the 24Moz Kirkland Lake and the 12Moz Kerr-Addison gold deposits, among others.
Heading up the Quebec push
Two former Northern Star (ASX: NST) guys – mining engineer Matt Nixon and geologist Andrew Chirnside – have taken the reins.
Nixon is LRL’s CEO and was previously mine manager of Northern Star’s Jundee operation while Chirnside is Labyrinth’s chief geologist, having held a similar position at the 285,000oz a year Jundee operation.
(Somewhat ironically, Northern Star recently let go of a chance to become a development partner in the 10Moz Windfall gold deposit with Osisko (TSX: OSK) in Quebec’s James Bay region after the price of consummating a deal spiked on news of its potential entry).
LRL’s flagship project is the namesake Labyrinth deposit. It was picked up late last year and comes with a foreign resource estimate of 2.1Mt grading 7.1g/t for 479,000oz of gold from work done by others a long time ago.
That’s interesting in itself given the company’s market cap. LRL also holds the Denain epithermal gold prospect within the Abitibi greenstone belt, some 230km to the east along Hwy 117.
LRL has not messed around, as might be expected from Nixon and Chirnside after their years at the can-do Northern Star. A maiden drilling program is underway with the aim of converting the resource estimate at the flagship Labyrinth to JORC status, as well as targeting high-grade extensions (historic hits include 2.39m at 207.8 g/tonne).
An initial campaign has been completed at Denain to meet expenditure commitments. A bunch of assay results are pending, though initial results there confirmed shallow and high-grade mineralisation, along with some elevated copper counts.
So it has been a good start. But the initial results is not all that has got Nixon and Chirnside excited. On a recent visit to Quebec, they took possession of historical assay data that contained assays hits of more than 100g/t at Labyrinth.
The data is important because “only” a 45g/t top-cut was used in the current foreign resource estimate.
“These outstanding historical assays indicate a conservative top-cut value was utilised and reinforces the potential for a significant resource to be unlocked,” Nixon said. One to watch as the former Northern Star crew get to work.
Rumble Resources (ASX:RTR)
The early call in April last year that Rumble (RTR) had made a likely world-class zinc-lead-silver discovery at its Earaheedy project 140km north of Wiluna in WA is proving to have been on the mark as more drilling results roll in.
Last year’s excitement at the project - Zenith (ZNC) has a 25% interest – was based on the impressive results at the Chinook prospect.
Because of the sediment-hosted and flat-lying style of the thing, it was possible early on for Rumble to issue a conceptual target for Chinook alone – and to a depth just 80m, which does not take in the potential of the deeper layers – of 100-120Mt at 3.5%-4.5% zinc-lead sulphide mineralisation.
So Chinook alone has scale. Now the joint venture has added to the Earaheedy story, with drilling outlining a major mineralised footprint at the Tonka and Navajoh prospects (4km apart but possibly merging into one very large prospect), about 8km to the south-east of Chinook.
It goes to the expectation that Earaheedy is a base metals province in the making, with multiple large-scale deposits to be drilled up over time. Strangely though, Rumble has pretty much traded sideways at 45c since the initial flurry in the stock after the discovery was announced.
Doubly strange when zinc’s strong price performance on nagging supply fears is taken into account. The world faces shortages well before the end of the decade and new mine developments in Tier 1 locations is the answer.
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One of Australia’s leading business journalists, Barry FitzGerald, highlights the issues, opportunities and challenges for small and mid-cap resources stocks, and most recently penned his column for The Australian newspaper.