If there is one thing we have noticed over the last 12 months or so it is a bifurcation in the gold equities market. There has been a clear distinction drawn between the multi-asset producers and the single-asset producers which is shown up clearly when we split out share price performance on this basis. 

Over the last 12 months, the multi-asset producers in our Heat Map basket have returned a very handy 85% (with several adding fully-franked dividends on top of that). This compares with average capital growth of just 1% from the single asset producers in our Heat Map basket – a massive contrast. 

Interestingly, there appears to have been much less of a distinction drawn between the single-asset producers and the exploration / development companies in the sector, for which performance is closely comparable between the groups. 

Quarterly performance for each group is summarised below. We can see that this phenomenon has really kicked off over the last 12 months, commencing in the December quarter 2018. 

There are good reasons for the outperformance and the market giving recognition to this thematic – primarily the diversification of production and jurisdiction risk, the smoothing of operational performance and cash flows and typically lower costs of capital. This is no secret and was the strategic foundation of Evolution Mining (just ten years ago), which has been one of the most successful exponents of this model. 

Attractive M&A window still open 

However, in the current market where valuations appear to have touched some upper resistance levels (at least for now), we believe the greatest opportunity this creates is for the execution of value-accretive M&A deals by the multi-mine producers or between the right single-asset companies. This has already commenced (and been recognised, in our view) and we expect more to come. 

The outperformance of Silver Lake Resources (SLR, not rated) and Red 5 Ltd (RED, not rated) we think are clear examples of value being recognised for the transition from a single-asset company to a multi-asset company. SLR achieved this via the acquisition of Doray Minerals, while RED’s second asset has been driven by discovery and the recent delineation of a 1.5Moz open-pit Ore Reserve at its King of the Hills gold project, which it acquired from Saracen (SAR, not rated) in October 2017. We believe this M&A window remains open and should be capitalised on while it lasts. 

Bell Potter precious metals coverage

Regis Resources (RRL) 

RRL is one of our top picks among the ASX-listed gold producers due to its strong balance sheet, low costs, capital efficient growth and high shareholder returns. Furthermore, we view RRL’s 100%-owned organic growth options as a strategic advantage vs peers and the McPhillamys development project in NSW as undervalued by the market. 

Gold Road (GOR)

Gruyere is ramping up production after pouring its first gold at the end of June, with the plant fully operational now following a delay to the commissioning of the ball mill. The Gruyere JV is expecting to lift average life-of-mine gold production well above 300kozpa by optimisation and improving efficiencies in the conservatively designed plant. GOR continues to advance its 100% owned regional exploration and is closing in on a Maiden Resource at Gilmour. 

Dacian gold (DCN)

Its A$200m, 2.5Mtpa Mount Morgans Gold Project commenced production in the June quarter of 2018 with commercial production subsequently declared on January 1, 2019. Originally guiding production and costs for FY19 at 180-210koz and AISC of ~A$1,000/oz, poor Reserve reconciliations have led to a material downgrade of expectations. DCN most recently gave preliminary FY20 guidance of 150-170koz at AISC of A$1,350/oz-$1,450/oz. 

Westgold (WGX)

Is now solely focused on its three Murchison operations where most ore comes from higher grade underground mines, supplemented by minor ore from open pits and stockpiles. Apart from Big Bell, which is ramping up output as it nears the end of its re-development, mine refurbishment is essentially complete and the company is now generating growing free cash flow and plans to spin out its NT polymetallic assets as a possible IPO. 

Pantoro (PNR)

Following a difficult FY19 during which its Nicolsons operation was mining constrained, we continue to look for production improvements in coming quarters to drive a valuation uplift. The recent acquisition of a 50% managing interest in the Central Norseman Gold Project (CNGP) adds a second high grade project that is well suited to PNR’s skill-set. Exploration results and development planning are the key focus here in coming quarters. 

Millennium Minerals (MOY)

MOY’s primary asset is its 100%-owned Nullagine Gold Project, in the Pilbara region of WA. It has recently commenced the addition of an expanded processing route to treat refractory sulphide mineralisation which opens up its tenements to deeper gold exploration. However, technical risk and a poor operational performance have led to a de-rating of the stock. 

Breaker Resources (BRB) 

Is continuing to advance its 100% owned Lake Roe Gold Project, located 100km east of Kalgoorlie, 60km southsoutheast of the operating 3.5Moz Carosue Dam gold mine. In September 2019 an updated Resource of 23.2Mt @ 1.3g/t Au for 981koz contained gold was announced, including 803koz @ 1.4g/t Au in the Indicated category and a high grade core of 673koz @ 2.2g/t Au. While Resource growth has been slower than expected we remain of the view that Lake Roe is the most compelling greenfields gold discovery in the market. 

Xanadu Mines (XAM) 

Shallow drilling of oxide gold mineralisation at Golden Eagle, Stockwork Hill and Copper Hill within the 76.5% owned flagship Kharmagtai Copper–Gold Project in Mongolia continues to yield very positive results, confirming their potential to support a possible “starter” project to help funding of the potentially much larger copper-gold development. 

S2 Resources (S2R) 

Recent drilling of base of till gold anomalies in Finland has discovered significant gold mineralisation at the Aarnivalkea Prospect that is similar to the nearby Kittila mine (9Moz) and at the nearby Aakenusvaara Prospect, where the mineralisation is similar to the nearby old Saattopora mine. New geophysics at the Ecru Gold Prospect in Nevada, USA has defined likely intrusive targets, adding to the Carlin gold potential to be drilled soon. 

Full report

You can access the full report below in which we review the production profiles for the larger gold companies, a comp tables for producers and explorers, performance heat map of the sector and the precious metals markets as well.