The Drum
Sydney Morning Herald
Friday April 8, 1994
GOLD IS ALL SWINGS AND ROUNDABOUTS
THE gold bugs were wearing nervous smiles last week, boosted by the realisation that although gold stocks are an inflation hedge, no-one seems to have yet spotted that there is not much inflation actually out there.
The movements in the overall sharemarket and the gold sector have thrown up some very interesting anomalies, suggesting that either people were paying too much for gold stocks at the end of January, or they are getting a bargain now
Consider the evidence.
The Gold index is now at 2329.5, a bit below the 2476 level where it started the year, and the gold price is almost unchanged from the end-1993 level of $US390.80 an ounce.
But by the end of January the index ran up to 2734, 14.5 per cent above the current level, while the gold price did practically nothing.
Word from the pundits is that the recent attack of the sharemarket horrors distracted attention from the speculative sector, even though a totally logical approach to US inflation worries would have been a solid punt on gold stocks.
In an echo of the sharemarket crash, overseas investors were more concerned about being carted out in markets such as Hong Kong (off 20 per cent at one stage) than the potential benefit to the gold price of a runaway US economy.
Given what happened to the inflation panic, they were right.
And all the while the explorers did what they do best, which was to look for the stuff.
Prize contestant remains Ross Atkins' St Barbara Mines, with its delicious 134-metre intersection averaging 16.2 grams from the Black Swan South prospect at Cuddingwarra, near Cue.
Blue sky on the blue sky is that the mineralisation, which included one metre at 336 grams per tonne, is still open at depth, and crossover holes are now planned.
Word is that the hole has produced a further 25 metres at the same 16.2 grams average grade, which they used to call half an ounce.
All of this must make painful reading for Alan Bond, who used to own Endeavour Resources back in the mid-1980s when it had the Bluebird mine just south of Meekatharra.
Under Bond control the company had a perennial problem with reserves, but Atkins, who also bought Bond's waterside mansion in Perth in a separate transaction, has increased reserves past the one million ounce mark.
INDEX BOUNCES
THE Eyres Reed Exploration Index, pulse rate of the blue sky brigade, ticked up during the week after bottoming out at a point where it could just have fallen badly.
Analyst Gareth Lloyd managed to disguise his relief but admitted that volumes were down in the sector, as ever in a price dip. Best performers over March were Compass Resources (up 43 per cent), Tindals Gold (up 40) and Gary Morgan's Haoma NW (up 29). Wooden spooners were Eagle Bay Resources (off 42.9 per cent), Nugold Hill (off 40) and Victoria Petroleum (off 36.7).
FRENCH POLISH
ONE happy customer of the resilience of the major gold stocks is Paris fund manager Guy Borel,whose Societe Generale funds own about $400 million worth of Australian gold stocks.
The man who may just be Australia's biggest gold investor came out for the recent Kalgoorlie gold conference. He spent a week there and visiting mines in Western Australia, where most of his holdings are.
He was coy about what sort of adventures he had but said "one is always well received in Australia".
Plutonic, North Flinders, Sons of Gwalia, Asarco and Forrestania Gold are all stocks he picked up around two to three years ago at prices that would make you cry now.
The stocks have done anything between doubling and quadrupling, while the recent appreciation of the dollar against the franc, from around Ff3.60 to Ff4.00, has done him no harm at all either.
"The price of Australian gold stocks is anticipating increases in the bullion price to well beyond current levels," he said.
"But I have a long-term perspective and a positive view on the gold price, and have seen nothing to reduce my confidence in the stocks already held."
He said Australia continued to turn up "a number of companies making interesting discoveries", which is his favourite yardstick.
"I try to avoid mature situations," he said.
One stock he may look at later if not sooner is Centamin Ltd, despite its historical associations. The Perth-based explorer, one of whose directors is the veteran gold finder Mohamed El-Ansary, has been drilling on the Nelson's Fleet lease about 20 kilometres south-east of Kambalda.
The permit bears a sort of parent name to Western Mining's many mines in the area, which include Victory and Defiance, both of which caused Napoleon Bonaparte a spot of bother at Trafalgar in 1805.
Centamin's price moved up from 10c to 20c during February on the strength of a small but, according to El-Ansary, interesting six-hole drilling program
Two of the holes were targeted on a 700m x 200m underground feature, and they both returned mineralisation.
(El-Ansary found Boddington and Mt Gibson, neither of which had any surface expression).
Hole NFD15 turned up 61 metres grading an average of 1.5 grams, including 18 metres at 4.6 grams around the 190-metre level, while hole 19 struck 25 metres at 2.1 grams starting at the 88-metre level, with two smaller but higher grade intersections at the 140-metre and 187-metre levels. NFD15 bottomed in mineralisation.
Mr El-Ansary said the company was waiting for a drilling rig from Kalgoorlie to explore the feature further.
A year ago Centamin bought out partner Aztec for "not very much," he said. He said he spent 90 per cent of his time on Centamin business and the rest with his friend and colleague Sami El-Raghi on a gold play in Egypt, where they are not exactly greenhorns.
They are not taking any salary at Centamin, preferring a chunk of shares, so they are more interested than most in the eventual outcome from Nelson's Fleet.
RICH PICKINGS
MOVING up the scale a bit, James Capel's London- based Ashanti float is causing some joy to its underwriters, if not to the people who can't get stock, and that will almost certainly mean you.
The $US470 million selldown of 25 per cent owned by the Ghanaian Government is going well and looks set to be closed off well oversubscribed on April 18 at the top end of the book-builders' price bracket of $US17 to $US20.
The Government owns 55 per cent and Lonrho, the operator, has 45 per cent.
The historic p/e of 17.7 times looks tall until you spot that last year's production of 770,000 ounces will move up to about 860,000 this year (to September) and the round million next year.
Cash cost of production is $US173 per ounce.
So what does this mean, in the old phrase, to the people of Australia?
It looks set to spill over into the share prices of other stocks involved in Ghana and they include, on a smaller scale admittedly, Golden Shamrock, Associated Goldfields and Ranger Resources.
Golden Shamrock derives all its revenue from the Iduapriem goldmine, started in 1992, and in which it has a 70 per cent stake. Production is about 130,000 ounces a year and cash costs $US200 an ounce, while the reserves at this stage are 1.7 million ounces.
Associated Goldfields (AGF) owns 41 per cent of the Obotan prospect, which is 35 kilometres north of Ashanti.
Hartley Poynton gold analyst Richard Harris says there is about 600,000 ounces of resource there at the moment despite drilling having started only in October.
At Obossa, Ranger Resources has gone further than AGF but the orebody there is reportedly slightly lower grade.
© 1994 Sydney Morning Herald