Debate about gold’s outlook becoming as hot as the price, as Macquarie and Tolga show

It takes a brave person to call an end to gold’s run to record levels in nominal terms.

But when the small and big financial papers start writing up calls for gold to hit $US3,000 from its current $US2,040/oz, you’ve got to start wondering.

Using a safety in numbers approach, Macquarie’s “gold commodity desk strategy team’’ has been one of the few to urge caution.

“Gold has pushed through the $US2,000/oz barrier which we believe to be an overshoot move, raising the risk of a sharp correction,” the desk penned this week.

So if you are moving around a State not in COVID lockdown and a bell boy asks where gold is headed, do him a favour by directing him to the Macquarie note.

While its lone wolf warning acknowledged there are plenty of reasons why gold has trotted to record levels, Macquarie said the ultimate haven metal was looking “rich on a cross-asset basis, trading $US150-$US200 above our ‘fair value’ estimates”.

“We believe this is the overshoot move that we have been looking for and, while momentum could carry prices further, it raises the risk of a sharp correction,” Macquarie said.

FIREFLY:

Melbourne’s bustling mining investor Tolga Kumova also worries when the papers get on board a momentum story, and over cook things in the process.

From Stage 4 lockdown at his bayside pad, Tolga said normally it would be an alarm that gold’s bull run was over.

“But there is a difference this time, it’s the climate we are in. The amount of money being printed, and which needs to continue to be printed, is underpinning all this. So I don’t think gold slows down at all,” he says.

And true to his belief, Tolga has emerged as a backer of Firefly (ASX:FFR) and its plans to revive the Yalgoo goldfield in Western Australia’s Murchison. After Firefly’s recent raising at 3c, Tolga has emerged with a 5.8% stake. It last traded at 9c for a market cap of about $20m.

Yalgoo has been ignored for 15 years, which is amazing given we are in $A2,840/oz gold price environment.

Its production history of more than 120 years is something Tolga likes to see first up, the idea being the oldtimers weren’t getting paid $A2,840 an oz for their hard-won gold, and they didn’t have the modern-day exploration gizmos that can unlock new potential.

It’s a strategy that worked well for Tolga at Bellevue, which has a similar, albeit higher-grade, background.

There are some smallish but good grade non-ASX compliant resources to start work on, as well as the wider appeal of Firefly having a 600sqkm exploration package covering the old goldfield and the wider Yalgoo-Singleton greenstone belt.

Tolga reckons it won’t take much to be able to drill out and mine the known deposits as there are plenty of hungry treatment plants within trucking distance. “So they can get it up and going really quickly,” he says.

“There are also intrusives on the property which are probably lower grade but with the potential for wide zones of mineralisation. There is a fair bit of interest and excitement about that. And they are going to be drilling these things really soon, like next week.”

The company itself, led by former Northern Star man Simon Lawson, said as much when it announced on August 3 that it had received the required approvals to kick off its maiden drilling program.

KALAMAZOO:

The wonderfully named Kalamazoo (ASX:KZR) has made a late pitch to be included as a nominee for deal of the year by a junior for the 2020FY.

Last month it picked up the Ashburton gold project near Paraburdoo in the Pilbara from Northern Star in a deferred $17.5m cash deal with Northern Star.

Deferred is the important bit because cash and sliding royalty payments only flow to Northern Star on Kalamazoo making a success of Ashburton i.e. it becomes the 100,000-150,000pa gold producer it has the credentials to become.

Those credentials are underpinned by a 1.65Moz resource (20.8Mt at a handy 2.5g/t) worked up by Northern Star before it put the project on ice in 2013 because the gold price fell from US$A1,600 to US$1,300/oz in a hurry.

That sharp fall gave rise to Northern Star’s subsequent Pacman acquisition of producing assets shed by retreating US gold majors.

Those acquisitions have underpinned its growth from a one-mine producer at the currently mothballed Paulsens gold mine, a couple of hundred kilometres west of the Ashburton project, into the gold powerhouse it is today.

So the Ashburton gold project – thought about in Northern Star’s time as a 100,000ozpa producer from oxide ores ahead of a shift to refractory sulphide ore – became non-core and was left on the backburner.

The Reinehr brothers who control 32% of Kalamazoo were private explorers around Paulsens in its early days and got to know the Northern Star team well. The benefit of staying close is reflected in the deal struck on the Ashburton.

Kalamazoo has put together a quality team for the Ashburton push and is full of ideas on how to grow the existing resource base, with the first exploration holes under its ownership expected in the next two to three months.

Kalamazoo shares have risen in response to the deal. It last traded at 67.5c for a market cap of $68m.

That looks to be on the mean side of things when compared with the fancy market caps of the Pilbara gold explorers/developers up towards Port Hedland thanks to the excitement around De Grey’s Hemi discovery.

De Grey and the other Pilbara gold players are trading at multiples of Kalamazoo on a per resource ounce basis for no apparent reason, remembering of course that Kalamazoo is also one of the leading lights in the new Victorian gold rush.

Two of the biggest gold bulls in the world – Sprott and Novo Resources Corp - love the Victorian search for the next Fosterville as much as they do the addition of a Pilbara gold leg to the Kalamazoo story. They each hold 7% of the company.

ORION:

China’s V-shaped recovery and COVID-19 supply impacts are having a telling impact on base metal prices.

Copper is up 40% since the world woke up to COVID-19 being a problem while zinc has put on 33%.

That’s been good news for Orion Minerals (ASX:ORN), which was trading at 1.9c before going into a trading halt to get a $5m placement away at 1.7c, with the size likely upgraded to $6m to meet demand.

The funds allow Orion to keep things ticking over at its all-but shovel ready Prieska copper-zinc project in South Africa while Macquarie continues to work away at securing a strategic partner for the project.

As the price recovery for copper and zinc reflect, there just isn’t enough copper and zinc projects – or combined copper/zinc projects for that matter – to meet future demand in a normalised world.

So the strategic partnering exercise is one to watch. It would not surprise if the partnering process becomes a take-out exercise, such is the need for smelter owners to secure new long-term supplies of concentrates.

Its share price might be 1.9c but its market cap of $55m goes at least part of the way to reflecting Prieska’s status as one of the few quality projects available.

During the trading halt, Orion secured a water consumption/water discharge licence for the development.

Orion managing director Errol Smart said it was a major milestone as it removed the biggest remaining regulatory hurdle before the mine could go ahead (the existing shaft needs to be dewatered to get to the new resource position outlined by Orion).

More to the point was the following from Smart: “Many of the banks and potential strategic partners that we have been dealing with have flagged the outstanding licence as a major concern that could potentially hold up an investment decision.’’

It is not now. 

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