Since rising above US$1,827.6 per ounce in early September, gold fell to a low of US$1,726.1 per ounce at the end of the month. This led many investors to speculate that the bull market for gold was over but if that’s the case, why is gold now rising again?
Well, we are all feeling the effects of the continued rise in the price of goods, fuel and energy, known as Inflation. Large national debts taken on during the COVID-19 pandemic now need to be reduced and part of any government’s strategy is going to involve the de-valuing of its currency, through inflation.
UK inflation is at a 9-year high, Eurozone inflation is at a 13-year high, US inflation is at a 13-year high, Brent crude is at a 13-year high and natural gas is at a 13-year high. Economic conditions are abysmal, national economies are in poor shape, but the investing community doesn’t seem to have taken this on board, yet.
The inflation issue isn’t going to go away anytime soon, and we are now potentially heading into an age of inflation, where paper currencies will continue to lose their value and economic conditions will continue to worsen. As this situation deteriorates investor fears are likely to drive them towards gold in order to protect their own personal wealth.
Added to this, a cold winter in the Northern Hemisphere could send already high-energy prices rocketing, further fuelling inflation worries for investors and driving them to safe harbour investments, the most important of which is gold.
Not all signs are positive for gold though, the market has been pricing in an interest rate hike for December of next year, but recent CPI data and hawkish minutes from US Fed indicated it is now eyeing an interest rate hike earlier in 2022. The rise in interest rates could potentially act as a near-term brake on gold demand but in all likelihood, any rise is going to be fairly small and probably insignificant, compared to the high levels of inflation we are likely to be facing.
Renowned and seasoned natural resource investor Rick Rule recently pointed out that gold currently accounts for less than 0.5% of all investment and saving assets made in the US, which compares to 1.5% for the 30-year average. If precious metals return to this average in the next 3-5 years, demand for gold would increase by 200% from the current level.
Ultimately, given the economic headwinds we are facing, investors are likely to be more cautious in the short-term, and cautious investors hedge and diversify, and an important part of any hedge or diversification strategy should be gold, gold ETF’s or gold equities.
Here are some of the equities that we believe are well-positioned to take advantage of any further rise in the gold price.
Red 5
Red 5 Ltd (ASX:RED) owns the Darlot Gold Mine in Western Australia and is developing another operation at the King of the Hill Deposit, 80 kilometres south of Darlot. The company expects to produce between 62,000 and 72,000 ounces of gold from Darlot during the 2022 financial year at an AISC of A$2,300-A$2,400/ounce, which includes A$220/ounce of mine development costs.
In the second quarter of 2022 (Q4 of the 2022 financial year), Red 5 expects to transition processing operations from Darlot to its new King of the Hills processing plant, which is expected to be more cost-effective, reducing Darlot's AISC to between A$1,700-A$1,900 per ounce.
Production ramp up from the King of the Hills Deposit, where construction is underway, is expected to commence in the second quarter of 2022, with the operation producing around 150,000 ounces during the 2023 financial year at an AISC of A$1,339/ounce.
King of the Hills has a JORC 2012 mineral resource estimate of 4.12 million ounces at a grade of 1.4 g/t and remains open along strike and at depth, with excellent exploration potential.
Pantoro
Pantoro Ltd (ASX:PNR) is a Western Australian gold miner that owns 100% of the 300,000-ounce Halls Creek Project, which includes Nicolsons and Wagtail gold mines in the Kimberley Region, and has a 50% interest in 4.5-million-ounce Norseman Gold Project in the Eastern Goldfields.
At Halls Creek, Pantoro is expecting to produce around 9,000 ounces of gold per quarter at an AISC of between US$1,550 and US$1,750 per ounce. The company has undertaken extensive exploration during the year at a number of targets including the Slattery Discovery, 500 metres east of Nicolsons mine; Mary River; and the Lamboo PGE deposit. Pantoro is currently drilling at the Grants Creek target.
At Norseman, project approvals are in place and construction of the processing plant is underway, with first production planned for the first half of 2022. A definitive feasibility study completed for the Norseman Project in October last year, returned a post-tax NPV5 of US$129 million and a post-tax IRR of 35%, using a gold price of A$2,200/ounce (US$1,650/ounce).
The operation is expected to produce an average of 108,000 ounces of gold over a 7-year life of mine at an AISC of US$1,283/ounce, with a total capex of US$89 million.
Tietto Minerals
Tietto Minerals Ltd (ASX:TIE) is developing the 3.35-million-ounce (1.2 g/t gold) Abujar Gold Project in Côte d’Ivoire, West Africa. The company has recently completed a definitive feasibility study for the project, which returned a post-tax NPV5 of US$722 million and a post-tax IRR of 95%, using a gold price of US$1,700/ounce. The operation is expected to produce an average of 155,000 ounces of gold over an 11-year life of mine at an AISC of US$832/ounce, with a total capex of US$200 million.
Tietto is continuing its exploration program at Abujar and is awaiting assays for 80 completed holes (15,684 metres) and 1,287 metres of infill drilling expected to be completed by the end of October 2021. These results are expected to be included in the next resource update due at the end of Q4 2021.
While continuing its exploration program, the company is also fast-tracking mine development, with an early work program underway that includes front end engineering and design (FEED), site and camp construction. Tietto is targeting first gold production from Abujar in Q4 2022.
Nexus Minerals
Nexus Minerals Ltd (ASX:NXM) is advancing its Wallbrook Gold Project in the Eastern Goldfields of Western Australia. During the second part of this year, Nexus has been drilling at the Templar Prospect and the Crusader Prospect and has extended the strike length of the known mineralisation to over 1.6 kilometres but it remains open at depth and at strike.
At Templar, Nexus has confirmed the presence of gold mineralisation and associated alteration, which is the same as both Northern Star’s multi-million-ounce Karari Mine, just 30 kilometres to the south, and the Crusader Prospect. Recent results from Templar and Crusader have returned high grades over large intercepts, within larger intercepts of lower-grade gold mineralisation.
Nexus is now completing 30,000 metres of reverse circulation drilling and 3,000 metres of diamond drilling. Future drill programs at Templar will test for depth extensions to the mineralisation, as well as testing for further strike extensions to the Crusader and Templar mineralised corridor.
Theta Gold Mines
Theta Gold Mines Ltd (ASX:TGM) is developing the 6.1-million-ounce (4.17 g/t gold) Transvaal Gold Mining Estate Gold Project in South Africa. A pre-feasibility study completed in April this year returned an NPV5 of US$115 million and an IRR of 100%, using a gold price of US$1,700/ounce. The operation is expected to produce an average of 46,000 ounces of gold over a 7.7-year life of mine at an AISC of US$917/ounce Au, with a total capex of US$79 million.
This pre-feasibility study is only based on around 16% of the underground resource and there is considerable scope for the company to increase its production levels to its target of 160,000 ounces per annum.
The company is currently undertaking a definitive feasibility study, which is due to be completed in Q222, and alongside this, the team has commenced underground development work to make the mine safe for trial mining and underground sampling.
West Wits Mining
West Wits Mining Ltd (ASX:WWI) is developing the 3.55-million-ounce (4.26 g/t gold) Witwatersrand Basin Gold Project, also in South Africa. The company has recently completed a definitive feasibility study for Stage 1 Mine development at the Qala Shallows Deposit within the WBP, which returned a post-tax NPV7.5 of US$106 million and a post-tax IRR of 30%, using a gold price of US$1,750/ounce. The Stage 1 operation is expected to produce an average of 39,000 ounces of gold over a 17-year life of mine at an AISC of US$1,144/ounce, with a total capex of ZAR836.9 million (US$57.46 million).
West Wits Mining has also commenced an early mining initiative aims to produce 5,000-8,500 tonnes of ore per month from February 2022, the ore from which will be toll treated under an agreement with AIM-listed African gold recovery services company, Goldplat PLC (AIM:GDP).
Ora Banda Mining
Ora Banda Mining Ltd (ASX:OBM) has commenced the ramp-up of production at the 2.0-million-ounce (2.7 g/t gold) Davyhurst Gold Project, near Kalgoorlie, Western Australia. Production between July and September totalled 14,312 ounces of gold. As the ramp-up continues to gather pace, Ora Banda is targeting an average of 81,000 ounces of gold over an initial 5-year life of mine at an AISC of A$1,578/ounce.
The definitive feasibility study for the Davyhurst Project completed in June 2020, returned a post-tax NPV6 of A$137.4 million and a post-tax IRR of 109.3%, using a gold price of A$2,100/ounce (US$1,576/ounce). The operation had a pre-production capex of US$45.1 million.
Vango Mining
Vango Mining Ltd (ASX:VAN) is developing the 1-million-ounce (3.0 g/t gold) Marymia Gold Project in Western Australia. Vango has drill tested three of 11 open pit targets that are outside the current resource estimate, to further expand the size of the near-surface gold mineralisation at the project.
Results include:
- 6 metres at a grade of 19.2 g/t from 50 metres (ARC0067) – Apollo Target;
- 3 metres at 15.2 g/t from 40 metres (ARC0129) – Apollo Target;
- 2 metres at 11.1 g/t from 99 metres (PBR7977) – Parrot Target;
- 12 metres at 2.6 g/t from 43 metres (PARC0073) – Parrot Target;
- 16 metres at 4.4 g/t from 54 metres (VSKRC0007) – Skyhawk Target; and
- 1-metre at 12.1 g/t from 55 metres (VSKRC0003) – Skyhawk Target.
Results from the remaining eight targets will be reported once the assay results are received. Vango is also planning a second phase of follow up drilling at all targets that return positive results.
Australasian Gold
Australasian Gold Ltd (ASX:A8G) is exploring the May Queen Gold Project in Queensland. The company recently completed its Phase I drill program at the project, with results including:
- 6 metres at a grade of 1.99 g/t gold from 35 metres and 1 metre at 9.39 g/t from 68 metres (MQD0001);
- 1-metre at 1.92 g/t from 48 metres (MQD0003); and
- 1-metre at 0.55 g/t from 120 metres (MQD0002).
The company now plans to undertake a program of geophysics, which will include an IP survey, to detect potential silica enriched areas and disseminated sulphides. Results of the geophysics will assist Australasian Gold with targeting for a follow-up reverse circulation drill program to be undertaken in the coming months.
Great Boulder Resources
Great Boulder Resources Ltd (ASX:GBR) has commenced its Phase 5 reverse circulation drill program at the Mulga Bill Prospect within the Side Well Project near Meekatharra in Western Australia. This program will consist of 4,000 to 5,000 metres of drilling that is targeted to continue defining high-grade gold mineralisation in the central zone of Mulga Bill. Results of the diamond drilling program completed between July and August are expected shortly.
Previous drilling at Mulga Bill includes:
- 14 metres at a grade of 36.12g /t gold from 91 metres (21MBRC034);
- 6 metres at 31.20 g/t from 132 metres (21MBRC002);
- 8 metres at 3.63 g/t from 72 metres (21MBRC040);
- 2 metres at 9.61 g/t from 100 metres (21MBRC036); and
- 4 metres at 3.34 g/t from 88 metres and 3 metres at 5.34 g/t from 105 metres (21MBRC039).
Great Boulder has now defined gold mineralisation over a total strike length of over 5 kilometres and it remains open to the south.