Smart money eyeing near-term gold producers in hope of 2024 bullion breakout

Hopes that the ASX gold sector would start to win back the limelight from the lithium sector in response to the gold price reaching multi-week highs have been put on hold thanks to a more-hawkish-than-expected stance on interest rates by the US Federal Reserve.

While the US central bank left rates unchanged as expected, it did signal that another rate hike was possible before the end of year. Gold which was trading around $US1,950/oz, promptly retreated to below $US1,930/oz.

It made for a tough day on Thursday for the gold producers. But fear not, the near-term producers generally had a good day out, presumably on the belief that US Fed can only play with fire for so long, and that the interest rate shackles on the gold price will gone by the time they get into production.

Mind you, the Aussie gold price of more than $A3,000/oz should be all the encouragement needed for them to get into production, and for investors to return some love to the sector. The Aussie price remains firmly in record territory at a time of easing inflationary pressures on the industry.

It is not a lithium-type flood, but there are clear indications that selective buying of the near-term producers in preference to the fully priced producers is underway to capture the greater leverage they offer to what could be a break-out year for the gold price in 2024.

SPARTAN:

Spartan (ASX: SPR) is an example. It has been edging higher since it was last mentioned here as an 18.5c stock on July 14.

In Thursday’s dog day for the gold producers, Spartan gained 8.2% to 39.5c. While the thematic about near-term producers now being sought out stands, Spartan’s Thursday bump was helped along by a 60c price target on the stock by Canaccord.

As previously mentioned, Spartan parked up its relatively new Dalgaranga project in WA’s Murchison region in November 2022 because the less than 1g/t mill feed meant it was barely washing its face. The plan is to bring it back with higher grade feed, something made possible by the Never Never discovery in the shadow of the mill.

Canaccord’s price target on the stock is underpinned by a “base case” production scenario that assumed Dalgaranga returns at a processing rate of 1.7mtpa for annual production of 136,000oz at an AISC of $A1,616.

"We assume first production in the second of half FY2025, with the Never Never underground accounting for 75% of the ounces produced over a 7-year mine life,” Canaccord said. It assumes total capital to restart the project of $120m.

"We acknowledge our base case assumptions will likely evolve as the company moves towards final investment decision, but are comfortable with the level of conservatism built in, particularly if additional underground mines are defined, which could point to much higher production rates than we model.”

It expects a mid-2024 restart decision from Spartan.

ASTRAL:

Leverage to an interest rate-shackle-free gold price, and near-term production potential, was on full display in Thursday’s market from Astral (ASX: AAR).

The stock put on 1.1c or 15.5% to 8.2c, giving it a market cap of $65 million. The share price bump was in response to the release of a scoping study into the development of its Mandilla gold project, 70km south of Kalgoorlie.

The robust figures in the study suggest Astral’s market cap remains underdone. First production is further out than for Spartan, but at least Mandilla can now be thought of as being on the pathway to first production.

Whether Astral gets to build Mandilla itself remains to be seen. There are lots of hungry mills in the area, making Astral a takeover candidate, particularly at its current modest market cap.

The scoping study envisaged a 2.5mtpa mining and processing operation producing 100,000oz annually at an AISC of $A1,648/oz. Assuming a (modest) $A2,750/oz gold price, free cashflow over the first 7.4 years was put at $740 million, and net present value at $442m.

Processing plant and non-processing infrastructure capex was put at $123m – an amount an existing mill owner in the broader region could largely avoid if it were to decide to make Mandilla’s free-milling ore its own.

Boss:

Boss Energy’s (ASX: BOE) chief executive Duncan Craib asked and answered his own question during a presentation at the Melbourne leg of Resource Rising Stars’ 2023 Twilight series.

A good question it was too. Is it too late for investors to buy in to the gathering uranium boom?

Prices for the nuclear fuel have continued to push higher, reaching a 12-year high of $US68/lb, and in the case of Boss, its share price has risen 120% since the start of the year to $4.48.

“The question is what price can uranium go to? We are currently at $US68/lb. In the industry it is known that $US80/lb and above is needed to incentivise new projects (to fill the supply gap),” Craib said.

“So the price has to rise.”

More important though is Craib’s call that the uranium price will overshoot the incentivisation price within the next one to three years.

“Honestly, now is our time. What we are experiencing in the market place is the best fundamentals we have experienced in living memory,” Craib said.

Boss is getting ready to ride the uranium boom for all it is worth, with first production from a restart of its low-capex and low-opex Honeymoon project in South Australia forecast for late in the December quarter.

The World Nuclear Association (WNA) recently laid out the magnitude of the supply challenge, forecasting a near doubling in demand by 2040.

It expects reactor requirements for uranium will increase from 65,650t in 2023 to 83,840t in 2030 and 130,000t in 2040. That compares with current annual mine production of less than 50,000t.

“Although a small number of countries have phased out or are still committed to phasing out nuclear, overall there is a growing recognition that nuclear energy is needed to mitigate climate change and reduce air pollution,” the WNA said.

“Extension of reactor operating lifetimes has been an increasing trend in many countries including those with large nuclear reactor fleets, such as Canada, France, Japan, Russia, Ukraine, and the USA.

“Moreover, the prospects for new reactors worldwide have improved while many new countries have demonstrated a strong interest in developing a nuclear power programme.’’