Here we go again.  The price of gold rallied to approach US$1400 an ounce in March 2014 before falling back, stabilising, dipping again, and rising once again in June.  Here is a year to date price chart tracking the moves.

The Gold Bugs, both technical and fundamental, are out in force pointing to charts and global crises and economic data to make the case for continued rallying in the price of gold.  

Once again we see numerous articles across the web proclaiming better days for gold miners as well, even the juniors with low All in Sustaining Costs (ASIC) for producing the precious metal.  It would appear that some Australian investors are siding with the Gold Bugs.  The 23 June table Stocks on a roll: ASX rolling 52-week highs here on thebull.com.au showed seven gold miners making the list; some diversified but most pure plays.  What’s more, only three qualify as mid-tier miners, with the remaining four falling in the land of Penny Dreadfuls.  Here they are.

Company

(CODE)

Market Cap

Share Price

52 Week Low

52 Week High

52 Week % Change

2 Year Earnings Growth Forecast

Total Debt (MRQ)

Gearing

Oceana Gold Ltd

(OGC)

$952.8m

$3.17

$1.12

$3.48

+170%

+85.6%

$169.2m

25.5%

Papillon Resources Ltd

(PIR)

$644.9m

$1.90

$0.66

$1.92

+180%

-18.6%

0

0

Northern Star Resources Ltd

(NST)

$544.03

$1.27

$0.53

$1.35

+120%

+84.2%

$8.9m

8.3%

Fifth Element Resources Ltd

(FTH)

$35m

$1.75

$0.21

$1.75

+700%

(Listed 21 May)

Intermin Resources Ltd

(IRC)

$7.24m

$0.062

$0.05

$0.08

+5%

$621.4k

4.5%

Dragon Mountain Gold Ltd

(DMG)

$5.01m

$0.019

$0.01

$0.02

+75%

0

0

Global Resources Corp Ltd

(GRM)

$3.36m

$0.145

$0.02

$0.145

+400%

0

0

 

Oceana Gold Corporation (OGC) and Northern Star Resources Ltd (NST) have impressive growth forecasts, and the stock price appreciation year over year is far superior to the ASX 200 XJO Index, up about 12%; and the ASX XMJ Minerals Index, up approximately 18%.  A one year price chart for the two shows the share prices moved with the rising and falling gold price.  Here is the chart.

Oceana Gold has three operating mines in New Zealand and one in the Philippines, with expansion potential primarily in the Didipio operation in the Philippines.  Oceana also has exploration assets in Australia and in El Salvador. The company’s stock trades in Australia, New Zealand, Canada, and in the US on the Over the Counter Pink Sheets (OTCPK: OCANF).  

Oceana’s FY 2013 Full Year Results included record revenues and production, but perhaps the most welcome news was the AISC (All in Sustaining Costs) of $868, averaged across all gold operations.  The company also mines copper, but gold is its primary business.  AISC is an improved measure of the true cost of mining introduced by the World Gold Council.  Company AISC guidance for FY 2014 sees average AISC of $750 – $850, with lower costs in the Philippines offsetting the higher costs in New Zealand.  Results for Q1 were released in April, with the company continuing to reduce its debt to go along with record gold production for the quarter and AISC of $450 per ounce.

Long term Oceana shareholders have weathered the volatility in gold prices over the last few years with the company’s total average annualised shareholder returns of 23.7% over five years and 7.4% over three years.  In the last two years the share price is up 80%.  

Northern Star Resources Ltd (NST) has gone on a buying binge to increase its exclusively Australian mining operations, purchasing assets from Barrick Gold Corporation (NYSE:ABX) and others.  The Barrick deal propelled NST into the top echelon of ASX gold miners, and the most recent purchase of one of the biggest mines in Australia, the Jundee Gold Mine from Newmont Mining (NYSE: NEM) will reportedly move Northern Star to the second spot, behind only Newcrest Mining (NCM).  Jundee’s AISC for FY 2013 was $950 per ounce, moving NST’s AISC forecast to around $1,040 per ounce.  Investors seem less concerned about the moderately high production costs than the projected five-fold production increase due to the acquisitions, as the share price has risen 60% since the first deal was announced in January.  In addition, the company has released a string of positive drilling results for additional mining operations, with the most recent being a doubling of reserves found at the Pegasus site in the Kundana mining project.  The stock now trades in the US (OTCMKTS: NESRF).

Volatile gold prices have sent major players in search of asset sales and others to pick up added resources from low cost juniors.  Shareholders of Papillon Resources LTD (PIR), an exploration stage company with assets in the Fekola mine in Mali, West Africa, were recently rewarded with an all-stock merger agreement with Canada’s B2 Gold (TSX: BTO).  The $570 million dollar deal translated into A$1.72 per share for PIR shares, well above the last closing price prior to the deal at A$1.42.  The stock was in a trading halt immediately preceding the announcement and came out of the halt with a vengeance.  Here is a three month chart showing the move.

Although sovereign risk in Mali is a factor, the country is currently the third largest gold producer in Africa.  Papillon’s Fekola mine is now fully permitted and production is expected to begin in FY 2016.  

The performance of exploration stage gold producer Fifth Element Resources Ltd (FTH) since its official listing on 21 May is almost beyond belief.  In little more than a month, the stock price is up 700%, going from $0.22 on its first day of trading to the current price of $1.75.  Here is the astounding chart.

What makes the story even more puzzling is its rocky entrance onto the ASX.  Originally scheduled for March, it’s now secured for May. According to one of the sponsoring brokers, the initial $4 million raised came mostly from wealthy individuals in Hong Kong and elsewhere in Asia along with “a few locals.”

The average retail investor would be hard pressed finding much information on the company’s prospects.  Yet somebody is buying the shares.

The company was formed in November 2013 by acquiring four exploration licences from another company associated with the Chairman of Fifth Element, EJ Resources Pty Limited.  EJ Resources has reportedly been engaged in exploration activities since 2012.   The four projects – Fairholme, Pine Hill, Trangie and Mendooran – are copper and gold in existing mining areas of New South Wales.  The IPO prospectus refers to the areas as “highly prospective projects.”  Fifth Element intends to use the IPO funds for drilling activities as well as additional exploration activities.  

Intermin Resources Ltd (IRC) is a classic example of the perils of punting on junior miners.  The company has been around for a long time and is still in the exploration stage, with five gold and other mineral resource projects throughout Australia.  Here is a ten year price chart for IRC.

The company still has multiple mining and prospecting leases and in its most recent quarterly report stated its Teal Gold Project at Binduli is awaiting a project management plan, with actual mining to commence thereafter. 

Dragon Mountain Gold Ltd (DMG) is another punter’s nightmare.  American writer Gertrude Stein once said about her hometown of Oakland California, “there is no ‘there’ there.”  The same could be said of Perth based gold explorer, Dragon Mountain.  This is another company with a long history beginning in 2006 with the acquisition of the Lixian Gold Project in China.  It listed on the ASX in 2007 and the drilling results from Lixian and its other China prospects were increasingly promising. In 2011 the company sold the Lixian Gold Project, maintaining 75% ownership in the exploration licenses of Xinjing Pan Pacific Mining Limited Co. Ltd. in northeastern China.  The majority of the proceeds of the sale went back to the shareholders in 2012.

Following the sale, prospective investors were treated to a series of quarterly reports, all including the same statement – The Board is currently assessing projects in Australia and worldwide in an attempt to secure a new project for the Company. To date no project has attracted the attention of the board. The board will continue to assess projects as they are identified.

So even though the company has no projects, the share price somehow managed to rise 75% year over year, perhaps because of the approximately $5 million in total cash on hand.  The big picture is quite different.  Here is a price movement chart for Dragon Mountain since it began trading on the ASX.  Note the price drop following the distribution of the proceeds from the asset sale.

Global Resource Ltd (GRM) is focusing its efforts on mining potash in its Great Sandy Desert Potash Project in the East Pilbara Region of Western Australia.  Other projects include lead-zinc-silver deposits and iron oxide copper-gold deposits in Queensland and a gold project in Turkey.  Global is the 100% owner of all its projects.  The company still has an operational licence for the Aktarma Gold Project in Turkey.  

Global believes the Great Sandy has the potential to turn the area into a major producer of sulphate of potash (SOP) – a specialty fertiliser for high value crops.  

On 02 June the company made an investor presentation with the following quote from Global Investment Banking giant Goldman Sachs appearing on the cover page:

•    “As iron ore was the boom commodity over the past 10 years, we highlight potash as the commodity for the next decade.”

On 17 June the company announced the successful placement of shares to institutional and sophisticated investors, raising $710,000.  Investors liked what they heard.  Here is a three month chart.

The company expects to begin drilling in the latter half of 2014.  Global’s Great Sandy Project is adjacent to another potentially world class potash discovery, owned by Reward Minerals (RWD).  Reward is another miner that made the 52 Week Rolling High list, with its share price up 285% year over year.  

Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.

Click on the links below to read other articles from this week’s newsletter

1. In-vitro fertilisation is a big trend – stocks to benefit: In-vitro fertilisation captures the imagination…

2. 18 Share Tips – 30 June 2014: With record low interest rates and little…

3. Top stock to play the housing trend: One might have expected Aussie investors in our…

4. Junior Gold Miners Making 52-Week Highs: The Gold Bugs, both technical and fundamental…

5. Look at the data to understand the risks for the Australian economy: What are the risks in the economic outlook for…

6. Are your investments held tax effectively?: The Tax Effectiveness Ratio is a guide to…

7. Banking’s huge profits almost ready for the taking: Australia’s big four banks are the most…

8. Top 10 shorted stocks: Each day we feature the top 10 shorted stocks…

9. Stocks on a roll: ASX rolling 52-week highs for the previous…

10. Stocks on the slide: ASX rolling 52-week lows for the previous…