Look beyond the gold price part 4: Gold, copper and 300 million ounces of silver
Today is the last of our four-part feature on finding value in the gold sector where we have examined an array of factors that serve to determine which companies are likely to benefit most from all-time record gold prices.
With a view to focusing on low-cost producers with the potential to also benefit from the strong copper price which is close to its 2018 highs of more than US$3.00 per pound, we have featured emerging stocks in the gold-copper space.
Last Friday we underlined the merits of AusQuest Limited (ASX: AQD), Titan Minerals Ltd (ASX: TTM) and PolarX (ASX: PXX).
Those companies performed strongly on Friday with their shares increasing by 25%, 8% and 13% respectively.
Today, we look at three other companies that fit that profile, two of which are relative newcomers in that space with projects in Australia, and another that is not only a budding gold-copper play, but it also has one of the world’s largest silver deposits.
ScandiVanadium Ltd (ASX:SVD)
One of the strongest performing stocks by share price appreciation amongst the emerging players is ScandiVanadium Ltd.
As a newcomer, the company is yet to change its name to reflect its new focus on precious and base metals, but it has wasted no time in snaring some prime territory in Western Australia in proximity to one of Australia’s most notable recent discoveries, as well as Newcrest Mining’s (ASX:NCM) Telfer Project.
The latter produced 450,000 ounces of gold and 15,000 tonnes of copper in fiscal 2019 at all in sustaining costs (AISC) of $1253 per ounce, implying a margin of A$1600 per ounce based on the current gold price of about US$2050 per ounce and a AUD/USD foreign exchange rate of US$0.715.
As we mentioned previously, Australian gold producers are benefiting substantially from the lower Australian dollar relative to the US dollar.
The discovery we referred to is Rio Tinto’s Winu Project which has been the subject of extensive drilling over the last 12 months.
In commenting on progress at Winu, Rio’s management recently said, "In addition to the ongoing work at Winu, Rio Tinto is conducting exploration within the broader Paterson Province on its wholly-owned licences and joint venture licences during 2019."
This is good news for ScandiVanadium as it has recently launched its foray into the region as it advances the Pascalle Project as shown below, to the south-west of Telfer.
The company just announced yesterday that it had pegged additional ground to the south-east of Pascalle, which can be seen above (new applications).
The new tenements applied for by SVD target highly promising geophysical targets under 400-500 metres of cover thought to be prospective for Telfer, Winu and Havieron style mineralisation.
These new applications are located in the underexplored southern portion of the Paterson Province, with the same host formations and structures common to the major mineral deposits in the region further to the north.
Interestingly, tenements that are close to the newly acquired ground are owned by Fortescue Metals Group (ASX: FMG) and AusQuest, which we featured on Friday.
Ausquest’s shares have increased 150% in the last month, and more than 300% since the market bottomed out in March.
Despite the known geological affinities, the area has seen very limited historic exploration, but SVD and some other key players are about to change that.
SVD executive chairman David Frances said, “We are delighted to expand our footprint in the highly prospective Paterson Province.
‘’Recent activity at Havieron and Winu has demonstrated that there are still significant discoveries yet to be made under cover along the Paterson Province gravity high.
“The additional tenements complement our more advanced Pascalle Project, developing ScandiVanadium as a substantial landholder in the region.”
Aside from the obvious benefits of making its own discoveries, the fact that Rio Tinto is actively seeking additional exposure in the region is positive for ScandiVanadium, potentially placing it in a position where there could be joint venture partner interest to assist in funding exploration and development.
Superior Resources Limited (ASX: SGQ)
Superior Resources has three projects in highly prospective areas of Queensland that provide it with exposure to both precious and base metals.
While two of the company’s projects are located in the Mount Isa region of Queensland (Victor Project) and the Carpentaria zinc province (Nicholson Project), it is the group’s Greenvale Project that best fits the gold-copper theme.
Not only does it align with our focus but it is first on the list of priorities in terms of management’s exploration activities as it sees the Greenvale Project as highly prospective for VMS (volcanogenic massive sulphides) and porphyry copper, gold, zinc and silver deposits.
As indicated below, the project is located within an area of notable economic significance, being proximal to the Einasleigh, Kidston, Balcooma, Surveyor and Dry River South deposits, most of which are characterised by gold and/or copper mineralisation.
While this area contains a number of drill-ready prospects (with SPQ having commenced drilling recently), the key focus at this stage is the Steam Engine Gold Deposit where SPQ delivered an 11% resource upgrade in May, triggering a significant uptick in the company’s share price.
In fact, shares in the group have been trading strongly for the last four months, increasing some 300% since April.
As outlined below, Steam Engine currently has an Indicated and Inferred Mineral Resource Estimate of nearly 1.3 million tonnes at 2.3 g/t for 94,000 ounces of gold.
Discussing the potential upside of the Steam Engine deposit, managing director Peter Hwang said, “The current resource at the Steam Engine Gold Deposit is shaping up as a solid, quality deposit and the potential to add substantial ounces is obvious.
‘’The upgraded Mineral Resource Estimate is based on only 30% of at least 2.5 kilometres of strike of outcropping lode and only modelled to relatively shallow depths.
‘’Surface soil geochemistry supports the potential for a considerably larger shallow lode system that is yet to be tested.
“However, what we are particularly excited about is the possibility of an extensive high-grade feeder system developed underneath the known lodes.
‘’It is not uncommon for these feeder systems to develop thicker and more extensive zones of high-grade gold mineralisation.
‘’This is particularly so at Steam Engine where the mineralisation is mainly hosted within shear zones, and shear zones are conducive to the development of thicker vein sets.”
“Mesothermal vein-type gold deposits account for a large portion of the world’s economic gold deposits and they can hold impressive amounts of high-grade ore.”
Two other gold load zones aside from the Steam Engine Lode have been identified, being the Eastern Ridge Lode and the Southern Zone with the former being the longest lode structure, potentially representing the primary ore conduit.
Although the lode has been mapped at surface to be at least 1.4 kilometres long, gold surface soil geochemistry indicates that the structure is closer to at least 4 kilometres long.
Commencement of the first-stage infill drilling program at Steam Engine is designed to upgrade most of the gold lode zones within optimised pit models to Measured and Indicated resources.
Hwang sees further drilling and a scoping study as the best pathway to near-term cash flow generation, and certainly in the current price environment employing a strategy that can lead to accelerated production looks to be the right move.
Myanmar Metals Limited (ASX:MYL)
My third stock is Myanmar Metals Ltd, a company that doesn’t altogether fit the gold-copper theme, but for investors who would like a huge splash of silver in the equation and are prepared to favourably weigh up the risk-reward metrics it is the ideal stock.
Bear in mind the silver price is hovering in the vicinity of a seven-year high at around US$28 per ounce.
Myanmar’s 51% owned Bawdwin Project is one of the largest contained silver deposits globally with a high-grade resource of 100 million tonnes at 3.1 ounces per tonne silver, 5.9% zinc and lead and 0.2% copper for more than 300 million ounces of contained silver.
MYL is in advanced stages of attaining approvals from the Myanmar Investment Commission (MIC), to enable the company to develop the project as a majority owner.
Argonaut analyst Matthew Keane views this approval as a major de-risking milestone for the company, and one would expect that an affirmative decision could be a significant share price catalyst.
It appears that some investors are anticipating success with the company’s shares nearly doubling in the last three weeks to hit a 12 month high of 11.5 cents.
Despite this strong share price spike, there could be further upside as Keane values the stock at 30 cents per share with his target price set at 18 cents per share to account for permitting and development uncertainties, as well as the issue of sovereign risk.
However, even taking these factors into account the target price implies upside of more than 50%.
Furthermore, there has been a development that occurred only last week that hasn’t been factored into Keane’s assumptions, and this is where Myanmar potentially offers attractive gold-copper exposure.
It was just last week that the Myanmar Department of Geological Survey and Mineral Exploration granted the Tarlay Copper-Gold Integrated Exploration Licence held by Locrian Precious Metals Limited.
MYL now holds an option to acquire a controlling interest in Locrian and has received a Grant Notice from the vendor in accordance with the share acquisition agreement.
MYL’s Board has 30 days in which to decide whether to exercise the Locrian option.
Tarlay covers 456 square kilometres adjacent to the Myanmar-Thai-Laos border, in a region known as the “Tarlay Gold Belt” hosting numerous small-scale mines.
Tarlay is the first of Locrian’s two district scale gold-copper exploration projects in eastern Shan State to be granted.
MYL’s executive chairman John Lamb views the grant of Tarlay as proof that the permitting process in Myanmar is still very much operational, suggesting this should bode well for the pending approval of the Bawdwin Project.
Foster Stockbroking recently crunched the numbers on global silver deposits ranked by contained silver (million ounces), and it is clear to see that the Bawdwin deposit is a standout asset, indicating Myanmar is punching well above its weight with a market capitalisation of approximately $200 million.
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