The gold price is up 7.2% since the start of the year, but it has been far from plain sailing.
Starting the year at US$1,824 per ounce, the price steadily rose during January reaching a high of US$1,953 per ounce in early February before falling to a low of US$1,811 per ounce at the end of the month.
During March the gold price strengthened and then continued to rise, reaching its current level of US$1,955 per ounce, having briefly been above US$2,000 as fears of contagion in the banking sector were at their height.
This volatility was driven by unexpectedly strong US economic data in February, which strengthened the dollar and temporarily weakened the gold price, this retreat did not last long with the prospect of additional rate hikes returning to drive the gold price higher.
Volatility & strategic buying
The volatility in the gold market is occurring at the same time as there has been a swathe of strategic players buying gold and gold assets.
These strategic players include national governments and some of the biggest mining companies in the world. These investors recognize that current economic conditions are likely to drive the value of gold and gold assets higher.
Last year was the thirteenth consecutive year of net gold purchases from central banks and also the highest level of annual gold demand from central banks on record.
February was the third month in a row that China reported an increase in their gold reserves. The Central Bank of Croatia bought almost two tonnes of gold in December, which is the first time in 20 years the Croatian Central Bank has brought gold.
Added to this governmental buying of gold, we have experienced a large number of gold miners being brought by rivals including:
- The world’s biggest gold miner, Newmont, made a US$17bn offer for rival Newcrest Mining, that, if successful, will be one of the biggest deals in Australian market history
- Canada’s Agnico Eagle Mines and Pan American Silver Corp are buying Yamana Gold (TSX:YRI, LSE:AUY) for US$4.8bn. Gold Fields was trying to get involved in this deal too
- Agnico Eagle Mines is spending US$10.4bn to acquire Kirkland Lake Gold
- BHP is acquiring OZ Minerals for US$6.4bn
- B2Gold Corp is acquiring Sabina Gold & Silver Corp. for US$800mln
- Former Goldcorp chief executive Rob McEwen has even acquired a 37.6% stake in junior gold explorer, Satori Resources
This is nearly US$40 billion of transactions already and it is unlikely to stop there.
Sebastien de Montessus, chief executive of Endeavour Mining PLC (LSE:EDV, TSX:EDV, OTCQX:EDVMF) said in a recent interview at the Mining Indaba conference that he expects more gold mergers and acquisitions this year.
More M&A?
This is a view supported by numerous analysts and commentators.
As yields on bonds decrease and interest rates rise, the gold price is also going to rise because the dollar purchasing power and the consumer standard of living are going down.
We are expecting continued uncertainty in global financial markets during 2023 and this can only support a continued positive trajectory in the gold price.
Given this positive backdrop, there are a number of gold companies that could be worth taking a closer look at, as they may represent interesting targets for larger rivals to acquire or are positioned to benefit from an uptick in investor interest in the gold sector.
West Vault Mining Inc (TSX-V:WVM, OTCQX:WVMDF)
It owns 100% of the Hasbrouck Gold Project, in Nevada. An updated pre-feasibility was published in early-2023, which defined a post-tax NPV5 of US$206 million and a post-tax IRR of 51%, over a mine life of nine years using a gold price of US$1,790/oz.
The Hasbrouck operation will have two mines, the Three Hills Mine and the Hasbrouck Mine, which have a total NI 43-101 compliant mineral resource estimate of 909,000 ounces of oxide gold at an average grade of 0.53 g/t gold. The low strip-ratio and oxide nature of the projects means it can generate very high returns for a relatively low-capex of US$66 million.
While there is significant exploration potential at the project to expand the scale of the resource, West Vault is unusual in that the Company only plans to build or sell Hasbrouck only when it is fully valued by the market, or by a potential acquirer.
The company has a tightly-held share register, 76% held by high-quality institutions, and has a strong cash balance, C$5.8 million (five years worth), which enables it to pursue this more unusual patient investor strategy.
The low-geopolitical risk and established infrastructure nature of the project’s location combined with the simple oxide mineralogy, which results in the low-capex and high-return nature of the project’s economics mean that the Hasbrouck Project will appeal to larger companies that are looking to increase their production levels through a low-risk acquisition and too risk-averse gold mining investors.
Sonoro Gold Corp (TSX-V:SGO, OTCQB:SMOFF)
It is advancing the Cerro Caliche Gold Project, located in Sonora Mexico, targeting to commence initial production in 2024. In early February 2023, Sonoro published an updated NI 43-101 complaint total mineral resource estimate for Cerro Caliche of 440,000 ounces of gold equivalent at an average grade of 0.45 g/t gold equivalent.
In addition to the defined resource estimate, an exploration target of between 125,000 ounces and 285,000 ounces of gold equivalent has been defined for the near-mine exploration targets where there currently is not enough drilling to define a resource estimate.
Sonoro believes that it will have significant potential to further expand the resource estimate in the future as there are regional targets along strike and parallel to the current vein trends, as well as several other mineralised trends located along strike that offer additional targets.
This updated resource estimate will feed into a preliminary economic assessment, which is expected to be announced by the end of Q2 2023.
Relevant Gold Corp (CSE:RGC, OTC:RGCCF)
It has five projects that cover an area of 40,000 acres in two areas, within Wyoming, USA. Relevant is unusual for a junior in that it already has a strategic investor, New Gold Inc, which owns a c. 7% interest in the Company.
Relevant is looking for Abitibi-like Orogenic Gold deposits in Wyoming as the Archean Greenstone Belts within Wyoming are believed to have been connected to the Abitibi at the time gold mineralisation was deposited, making the Company’s extensive ground holding in the Oregon Trail Structural Belt highly prospective.
The Company’s flagship asset is the Golden Buffalo Project located in west-central Wyoming, which covers an area of 3,725 hectares (9,205 acres). Relevant Gold’s initial drill programme at the Golden Buffalo Project was completed in 2022, and returned anomalous gold in 54% of the 26 holes drilled at the project, with all holes intersecting orogenic-style alteration, and one hole returning 1 meter at a grade of 83.8 g/t Au (22GB-012).
Demonstrating the presence of orogenic-style alteration is a huge technical success from the maiden drill programme, confirming that the Company’s exploration concept for the project is valid. The widespread presence of anomalous gold and the ultra-high-grade intercept in 22GB-012 prove that the targeted system is mineralised and that there is significant potential to discover areas of high-grade gold mineralisation with further exploration.
The results of this drill programme will be combined with the ongoing regional mapping and sampling programme to further refine targets ahead of a follow-up drill programme in 2023. Given the strategic nature of Relevant Gold’s land holding, with a district-scale land package, extensive pre-existing infrastructure, and low geopolitical risk of operating in Wyoming, a gold discovery would make Relevant Gold attractive to additional strategic investors in the space.
Bocana Resources Corp (TSX-V:BOCA)
It recently completed a reverse takeover on the TSX-V in just February of this year but is wasting no time and has already announced its plans to commence drilling at its Escala Gold Project, located in Southern Bolivia, in mid-April.
The Escala Gold Project covers an area of around 4,000ha (9,884 acres), and the project has been largely inactive for 25 years. Previous explorers, La Source Mining, sold its joint venture interest in the project to partner Normandy Mining for US$22 million in 1999 when the gold price averaged US$279/oz. At this time the joint venture held just 50% of the current ground position that Bocana currently holds, and did not include what Bocana believes are some of the most prospective areas.
Drilling and surface sampling by previous operators in the area has demonstrated the presence of anomalous gold mineralisation and a large gold mineralising system, with results including:
- 14 meters at an average grade of 1.1g/t gold from 48 meters (DDH 94-018) - Cerro Blanco
- 70 meters at an average grade of 0.28g/t gold from 23 meters (DDH 94-020) - Cerro Galapago
- 86 meters at an average grade of 0.28g/t gold from 35 meters (DDH 94-023) - Cerro Galapago
- And an 814.3-meter continuous rock chip sample at Cerro Blanco returned an average grade of 0.51 g/t
The April drill programme will consist of up to 2,000 meters (9-holes) of reverse circulation drilling at three main targets within the project: Cerro Galapago; Cerro Blanco; and an area of defined precious/base metal veins. A second of drilling consisting of a further 3,000 meters of drilling will follow up on the results of the phase 1 programme.
Adelong Gold Ltd (ASX:ADG)
It is advancing the Adelong Gold Project, located in south New South Wales, towards production. An updated scoping study for the project, completed in October 2022, defined a pre-tax NPV5 of US$53.56 million and a pre-tax IRR of 72%, over a five-year initial mine life using a gold price of US$1,720/oz.
The Adelong Gold Project is made up of four deposits with a total JORC 2012 compliant mineral resource estimate of 169,700 ounces of gold at an average grade of 3.41 g/t gold. The Company is focused on expanding this initial resource estimate with further drilling at the existing defined deposits alongside exploration at several targets, including Gibraltar, Sawpit and Northern Caledonian extension.
Adelong Gold also plans to upgrade the existing plant and use it as a Central Processing Facility to treat ore from its defined deposits and targets, but also from other deposits in the surrounding area. With no other gold processing plants operating within a 150km radius of the existing plant, Adelong with be in a strong position to leverage its facilities to make acquisitions to expand production levels.
Drilling is currently underway at the Gibraltar Target with four holes completed, while drilling at the Perkins Deposit is now completed and the drill rig is moving to the O’Briens Deposit. Drilling is expected to resume at the Caledonian Deposit and Sawpit Target after this programme at the Gibraltar Target has finished.
This drilling will culminate in an updated resource estimate during 2023, which is likely to extend the life of the mine. The resource update will include last year's successful drill programme and the results of the drilling currently underway.