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Mar 2015 - Rags to Riches

Rags to Riches

Stewart McDonald opened his RIU/Vertical Events packed Explorers' Conference in Fremantle in late February 2015 to an audience of ~750 delegates, optimistically proclaiming that the commodity bear market is over, the commodity boom has restarted again.

Many delegates remarked that they were surprised by the optimism amongst the conference, with companies ranging from "rags to riches".  Some companies were inexplicably trading for 1 cent or less ranging through to Northern Star which added a few $100m during the conference, with a ~15% appreciation to $2.30/share. And many companies showed growing North American fund buying of their stocks, having managed to get over their perceived fleeced losses in Regis, Silver Lake and St Barbara.

Northern Star (Paydirt's GMJ 2014 Miner of the Year) certainly appeared to be firing on all cylinders and had the vg (visible gold) in its booth from its spectacular RC drillhole at White Feather (adjacent to KB - Kanowna Belle) with a grade of 5,328gpt (5.33kg/t) as shown in the Figure. The intersection was apparently from ~250m downhole (or ~200m vertically), with the drillhole located near the old Kanowna township - if only the old timers had known as they apparently mostly stopped their workings at depths of ~50m below surface.

For some reason despite its richness and "walls of gold" at the 33m level, the Kanowna goldfield never revived. Delta Gold focused on the area in the early 1990s, but once they discovered KB, negligible further work appears to have been undertaken, until now with Northern Star.

Many companies at the conference keenly pointed out the approaching supply/demand shortfalls in zinc, copper and nickel, and consequent implied coming higher prices as also shown in the Figure.

The gold bugs received a boost from the Conference MC's super bullish comment that Apple needed to buy ~one-third of the world's annual gold production to meet the expected sales of its i-Watch. Although there may have been a decimal point wrong, otherwise each i-Watch appears to contain about 2oz (62.2g of 18k)  gold. But it is not impossible, as a Rolex (clunker) watch typically weighs 116g to 147g.

Apple does intend to consume large quantities of other metals too in the watch, and even more if its plans to manufacture its own automated cars (i-Cars?) come into fruition.

However, many explorers appeared to be strapped for cash, as Patersons highlighted in their presentation that of the ~600 explorers on the ASX, over half (~320) had less than $1m in cash (as shown in the Figure). And of that group ~40% had less than $300k in cash, while at least 39 had more cash than their market cap.

Some of the penny (1c) stocks such as Southern Gold (SAU.ax) struggled to explain why they were only 1.1c, yet expected to effectively be pouring gold in ~3 to 4 months' time in ~June/July 2015, from Metals X mining SAU's Cannon mine and handing SAU 50% of the profit.

The nickel sulphide producers appeared to be positively humming with Western Areas focusing on New Morning; Independence extending McLeay southwards; Mincor's 3 new discoveries/extensions which could result in higher production; and Panoramic's deeper extensions to both Savannah and Lanfanchi, while hoping that Lanfranchi's Schmitz deeps links with Deacon at depth.

While the new nickels of Poseidon have discovered a number of extensions and areas that Norilsk seems to have missed in its recent Lake Johnston acquisition. And Talisman have recruited a number of the Jubilee old guard to re-open and extend Sinclair at depth (as Sandfire appeared to be frantically exploring Talisman's adjacent ground at DeGrussa).

Discoveries were occurring or in progress, such as Dacian's re-interpretation of Mt Morgan's Westralia mine (especially the eastern side), and its Jupiter syenite with a recent intersection at Heffernans of 79m @ 1.9gpt. As the other market darling of Gold Road (Paydirt's GMJ 2014 Explorer of the Year), showed that it was undertaking follow-up RC on 3 of its delineated targets, with expected post assay results near the end of March 2015, that have the potential to become GOR's next discovery in the Yamana Greenstone Belt.

Aspects covered in the conference included regulatory issues that could affect miners and explorers such as regulations, taxes and opportunities. While amongst the presentations were the "new" technologies such as contouring rutile, ilmenite and muscovite in the tonalites of Gold Road's Gruyere and Phoenix's Castle Hill, as possible pointers to mineralisation.

Adelaide Resources also showed potentially successful results from its use of portable XRF's (FPXRF) being applied to produce at surface geochem at reputedly ~5% of the cost of conventional geochem.

Some companies were conspicuous in their absence, most noticeably the 4 S' of Sandfire, Saracen, Silver Lake and Sirius, while amongst the delegates were fundies, hnws, brokers and corporates, many with open chequebooks. A number of companies remarked that it was their best conference in a long time with their booths full of investors seeking information and a "must attend event for at least next year".

The Vertical Events/RIU conference is often seen as the bellweather indication that sets the tone for the coming year. Many delegates are hoping that it is correct and that the optimistic "resource outlook" mood continues in 2015 with the "green shoots" continuing to grow.

Disclosure and Disclaimer : This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (an independent research company) who is a Financial Services Representative with Taylor Collison Ltd.

Figure 1. RIU/Vertical Events' 2015 Explorers ConferenceGDNmar15

  • Written by: Keith Goode
  • Sunday, 01 March 2015

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