Gold Hits all time High - Will Small Cap Goldies rise too?

Sometimes stocks go up for no reason and no one knows why.

Another week and ALA (our biotech investment Arovella Therapeutics) just keeps going up on no news.

Yesterday ALA received a “please explain this price rise” request from the ASX.

ALA said the recent price rise may be because of an explanatory webinar they gave on April 4th, an increase in holdings by Merchant biotech fund or perhaps a scheduled presentation by ALA next week at a US cancer conference.

We’ve been holding ALA for over a year now and held it through a period of general negative sentiment for small cap biotech companies.

Here’s our original launch note on why we Invested in ALA from February 2022.

Speaking of out of favour sectors that are bouncing back...

Everyone hated gold in 2022.

But this week the gold price continued its slow and steady march to new all time highs.

On Wednesday night (Aussie time) gold hit a brand new all-time high against Australian dollar - A$3,035 per ounce.

And yes.. that is all time highs.. meaning the highest ever recorded A$ gold price in history.

We can’t pick any single catalyst or event to explain the gold price run.

We do know that gold tends to perform well when investors are looking for a strong and stable store of value.

This happens when inflation is high OR when there is a risk of a recession (deflation in asset prices).

At the start of this year we said we expect gold to outperform in 2023:

Source

Pretty much straight after we predicted that the gold price would have a strong run in 2023...it fell for a straight month.

Not a great start.

Yet over the last month the gold price has roared back.

While it’s way too early for a victory lap just yet, gold’s new all time high this week bodes well for for the rest of 2023.

If the gold price is ripping upwards, that means small cap gold explorers’ share prices will go up too, right?

Not necessarily...

...well at least not yet it seems.

Despite the high gold price, there has been little to no movement in share prices across the entire gold sector - from the majors already in production down to the gold juniors who are feeling no love no matter what they do.

So while the gold price is at new all time highs, company share prices - especially junior explorers - are still trading near all time lows.

We expect this to change if the recent run in the gold price continues and convinces the market of a gold price re-rate, rather than a short term gold price spike.

We have seen this all before though...when there is the combination of negative market sentiment and a lack of macro momentum in the gold space.

• Negative market sentiment - Investors have no appetite for stocks in general and even less for junior explorers because of their inherent exploration risk and constant need for more capital.
• A lack of macro momentum - Unlike the battery metals thematic, which has seen a giant wave of capital flow into everything from junior lithium explorers all the way up to established battery material producers, the gold space isn’t seeing the same excitement.

Typically when these two things are present, share prices fall to levels where companies start to look like good investment opportunities again.

Back in early 2020, the gold price had a strong run during the COVID market crash.

The gold price ran during peak uncertainty in March and April, then came back down when COVID looked like it might not be as big of a thing as everyone thought.

Then around the time the second COVID wave was in the media, gold ripped again and hit a (then) new all time high.

Small cap gold stocks really started running hard during that “second wave COVID gold price run" through June, July, August, and September 2020.

Many took the opportunity to raise decent amounts of capital at high share prices — a smart move particularly given what was ahead for small cap gold stocks.

And now, after a long couple of years in the doldrums, we think junior gold explorers could be one of the most compelling spaces to look for Investment opportunities assuming, of course, the gold price keeps running.

While it's emotionally and rationally difficult to do, investing and holding through periods of negative sentiment is where we have made some of our most rewarding Investments.

Most of the battery materials stocks we Invested in when they were out of favour turned out really well... over time.

Of course, we’d love to replicate this type of performance in the gold sector.

It hasn’t been fun for our gold Investments over the last two years, but we’re hopeful the gold price re-rates in 2023 and the market rewards the progress these companies have made:

Here are the small cap gold companies we are Invested in:

• TechGen Metals (ASX: TG1) - See our most recent note here.

TG1 is a micro cap explorer with a number of projects across Australia.

Last year it made a discovery at its NSW gold project after hitting an intercept ~94m thick with gold grades of 0.95g/t.

TG1 is now gearing up for its second drill program at this project, expected to start in May.

Our entry points into TG1 are 20c and 18c, TG1 is currently trading around 8c so still a way off before break even for us.

• Los Cerros (ASX: LCL) - See our most recent Note here.

LCL is currently undertaking its maiden drilling program at its newly acquired copper-gold project in Papua New Guinea.

We expect first assays to arrive any day now with drilling targeting high grade, shallow mineralisation.

We participated in the recent LCL rights issue at 3c per share back in February.

• Tempus Resources (ASX: TMR) - See our most recent Note here.

TMR holds a gold project in Canada with existing processing infrastructure that has in the past produced over 250k ounces of gold.

TMR since acquiring the project has made multiple new discoveries and is now looking to put out a maiden JORC resource.

Ultimately, TMR wants to put together a gold resource that’s large enough to warrant turning its processing mill back on and getting the project back into production.

We participated in the TMR rights issue at 5c per share back in September 2022.

• Titan Minerals (ASX: TTM) - See our recent Quick Take here.

TTM has commenced drilling multiple gold targets at its Dynasty Gold Project in southern Ecuador.

Dynasty hosts a foreign resource estimate of 14.5Mt grading 4.53 g/t gold for a total contained resource of 2.1Moz gold, which we hope to see updated to JORC standards following this drilling campaign.

• BPM Minerals (ASX: BPM) - See our most recent Note here.

BPM’s Claw project borders the $1.8BN-capped Capricorn Metals’ 2.1Moz Mount Gibson gold project in WA.

BPM is now completing heritage surveys with a view to drill two high priority drill targets in Q3 this year.

We originally Invested in BPM for its lead-zinc project, which unfortunately didn’t deliver the goods.

But if the gold price keeps running then BPM’s claw project should become interesting to the market.

So what happens next?

Like most other gold watchers, we will be keeping an eye on the gold price and hope it can form a new base above the last weeks all time high.

If that happens we expect increased attention on gold companies, including small cap gold explorers.

What exactly is gold anyway and why do people like it?

Gold is a precious metal and considered a stable store of value by investors.

Gold itself is a weird investment class because it doesn’t really have any industrial uses like battery materials or oil & gas do.

So why have humans valued gold so much for thousands of years? Why not any other elements in the periodic table?

This article provides a good explainer:

Read the full article

The basic summary is that gold’s chemical stability and scarcity make it a good store of value.

The fact that gold looks pretty and shiny compared to other candidate elements helps its acceptance as a currency.

After all, like cash-money or other “currency”, gold has a value only because we as a society collectively decide it does.

Hopefully over the next 12 months everyone “decides” the gold price will go up...

This week’s Quick Takes 🗣️

EMN: Euro Manganese’s product is on-spec

EV1: Framework Agreement signing ceremony set for 17 April

IRD: Lead Developer for Cape Hardy Green Hydrogen project selected

MAN: US based lithium project area is now 50% bigger

MNB: MNB: pursuing yellow phosphorus production for Li-ion batteries

TG1: TG1 preparing to drill its NSW gold project in May

TTM: Drilling commences at Dynasty Gold Project, Ecuador

This week in our Portfolios 🧬 🦉 🏹

Minbos Resources (ASX:MNB)

This week our 2022 Wise-Owl Pick of the Year Minbos Resources (ASX:MNB) gave the market a first glimpse into the potential project economics of its green ammonia project in Angola.

MNB released a technical study that showed it could produce ~112,000 tonnes of green ammonia per year from a facility that would cost ~€365 to €496M (CAPEX) to build.

The green ammonia would then be used to produce ammonium nitrate for fertilisers and mining explosives.

Given the announcement was for a technical study (NOT a feasibility study) it had no revenue estimate or Net Present Value (NPV) estimates attached.

We modelled a ballpark revenue figure based on internal assumptions and came up with a ~US$255M per year figure.

Multiplying the yearly revenue by the life of the electricity contract MNB signed with the Angolan state owned company for cheap renewable energy (25 years), we estimate a lifetime project revenue of ~US$6.38 billion.

Obviously this number is very rough and ignores all costs to build and operate the plant, and does not allow for the power contract to be extended beyond 25 years.

Note: These are VERY rough and basic calculations to get a ballpark idea of the potential revenue over the lifetime of the project. Assumptions have been made by us to arrive at this number - these assumptions could be wrong. It is for illustrative purposes only and should not be relied upon.

See our full Note to see how we came up with the assumptions we made.

📰 Full Note: MNB reveals first glimpse of green ammonia project - Financiers now circling

88 Energy (ASX:88E)

This week 88 Energy (ASX:88E 🇦🇺| OTC:EEENF 🇺🇸) finished wireline logging at its Hickory-1 well in the North Slope of Alaska, USA.

The big news was that 88E hit an estimated 450 feet (~137m) of net pay across all pay zones in its just concluded drilling campaign.

For some context, here are the net pays from the discovery wells across some of the North Slope’s largest discoveries over the last ~30 years:

• Oil super major ConocoPhillips made the Willow discovery back in 2016 and hit net pay of 72 feet and 42 feet across two discovery wells.
• Santos’s Pikka oil field was first discovered in 2013. The project’s owners at that time hit <225 feet in net pay across the Qugruk 3 well.

Those two discoveries contain 600 million and 1.2 billion barrels of recoverable oil, respectively.

88E’s 2023 well has a 647 million barrel prospective mean unrisked resource (net to 88E) - big enough to be a meaningful discovery if commercially viable.

The next step will be to flow test the well later this year/early 2024.

Ultimately, if 88E can prove commercially viable flow rates it could be on the cusp of unlocking a big oil discovery in a part of the world home to the USA’s biggest ever oil finds.

📰 Read the full Note: 88E delivers 450 feet (~137m) of net pay - now we wait for the flow test...

TechGen Metals (ASX:TG1)

As we mentioned, the gold price hit an all time high this week against both the US dollar and the Australian dollar.

The gold price on Wednesday sat at ~A$3,035 per ounce.

While the gold price is at all time highs, share prices of gold juniors are deeply out of favour with investors and share prices are trading near all time lows, for now...

We think that eventually sentiment will improve for gold juniors and fundamental progress at a project level will be rewarded in the market. Juniors, therefore, offer the most leverage to re-rates in the gold space.

One of the explorers we hold in our Portfolio with this two pronged exposure in the gold sector is Techgen Metals (ASX:TG1).

TG1 is preparing to drill its NSW gold project in May where it will follow up on its discovery holes from last year.

TG1 will be looking to confirm whether its discovery is actually related to a larger Intrusive Related Gold System (IRGS). If true, it could indicate size/scale potential at TG1’s discovery.

📰 Read the full Note: Microcap stock TG1 is drilling for gold in a few weeks

Macro News - What we are reading 📰

Battery materials:

E.P.A. Is Said to Propose Rules Meant to Drive Up Electric Car Sales Tenfold (NY Times)

Nickel Revolution Has Indonesia Chasing Battery Riches Tinged With Risk (Bloomberg)

US and Europe Wrangle Over Green Subsidies to Avoid a Trade War (Bloomberg)

Forrest and IGO signal battery metals processing plant (AFR)

Biotech:

Return of the megaround: Is biotech back from the brink? (Fierce Biotech)

USA battery Materials:

Ford forecasts electric vehicle division will lose $3bn this year (Financial Times)

Cannabis:

Germany scales back cannabis liberalization after EU talks (AP News)

Oil & gas:

CO2 Emissions From Electricity May Have Already Peaked as Wind and Solar Take Over (Bloomberg)

Turkey Says Its Black Sea Natural Gas Discoveries Are Worth Over $500 Billion (Zerohedge)

OPEC+ Shock Revives Oil Bulls Even as Demand Warnings Flash (Bloomberg)

Oil Surges Most in a Year After OPEC+’s Shocking Production Cut (Bloomberg)

Gold:

Bank of America lifts gold forecast by 10pc to $US2200/oz (AFR)

Helium:

Helium markets now experiencing ‘Helium Shortage 4.0’ (Gasworld)

Rare Earths:

The Skyrocketing Value of Rare Earths Powering the Energy Transition (AdamsIntel)

Tesla’s plans for rare-earths-free EVs will barely dent demand for these critical metals (Quartz)

Green hydrogen:

Japan Mulls Updating Hydrogen Plan With $113 Billion in Funds (Bloomberg)

Lithium:

Space companies vital in hunt for more lithium (AFR)

Simon Moores: Geopolitics is the Trend to Watch in the Lithium-ion Industry (INN)

Uranium:

World’s Top Uranium Miner Sees Clients Switching From Russia (Bloomberg)

Phone A Friend - How Uranium is Bought and Sold (Spotify)

⏲️ Upcoming potential share price catalysts

Updates this week:

• 88E: Drilling for oil in the North Slope of Alaska next to UK listed Pantheon Resources.
  • 88E finished its wireline logging program and announced ~450 feet of net pay across multiple reservoir units. See our take on the news here.
• GGE: Drilling its US helium project looking for a commercially viable flow rate.
  • GGE finished casing its well and is now preparing to drill into its primary reservoir target. See our latest GGE note here.
• TG1: Drilling at its NSW gold project in May.
  • TG1 put out some soil sampling results this week where it found 10g/t gold grades ~1km to the north of its existing discovery. See our note on the news here.
• EV1: Framework Agreement with the Tanzanian Government.
  • April 17th set as the official date for the formal signing of the Framework Agreement.

No material news this week:

• GTR: Maiden resource estimates across two of its uranium projects in Wyoming, USA.
• KNI: Drilling 3/3 of its Norwegian battery metals projects in Europe.
• IVZ: Drilling oil & gas target in Zimbabwe, Myuku-2 (Q3, 2023).
• NHE: Scheduled to drill two targets at its helium project in Tanzania (Q3 2023).
• DXB: Interim Analysis of Phase III Clinical Trial on FSGS (Q3 2023).
• GAL: Drilling at its Callisto PGE discovery in WA.
• TMR: Maiden JORC resource estimate for its Canadian gold project.
• LNR: >10,000m drill program at rare earths project in WA.
• LCL: Maiden drilling underway at primary PNG copper-gold target.
• BOD: Phase III clinical trial for CBD insomnia treatment.
• TTM: Drilling campaign at flagship Dynasty gold project.

Have a great weekend,

Next Investors