Dollar excites a sector, but for some it's the pits
Areason for the gold fraternity's recent optimism would definitely be that the weakening Australian dollar has put a bonfire under Australian Securities Exchange-listed gold stocks, which rocketed up an average of 25 per cent in July.
The famed Diggers and Dealers "conference" concluded last week and certainly lived up to its Bacchanalian reputation, even in the wake of a gold price that has fallen about 30 per cent in the past 10 months and a decline of about 60 per cent in the ASX index of gold companies.
No doubt the bounce of many resources stocks in the sector got them going. Most have benefited from the 15 per cent fall in the Australian dollar in the past two months with the prospect of expanding profit margins. The price of iron ore at $US130 a tonne, translated into Australian dollars at US90¢, is $144. The gold price at $US1300 is worth $1430 an ounce.
But the stock that is possibly generating the most excitement isn't one that will benefit from the weaker Australian dollar for some time. We're talking about the explorer Orbis Gold (ASX code OBS), whose stock has almost trebled in the past month or so.
Orbis has a prospect in Burkina Faso, West Africa, and announced a maiden resource of 1.8 million ounces of gold at 3.7 grams a tonne, which is apparently good grade for ore contained in a pit. It has another prospect about 150 kilometres away and a total resource of 2.5 million ounces at 4.1 grams a tonne, which is a good start, according to one trusted rock expert. Exciting stuff, but whether this company can convert its prospective drilling into a higher share price before it needs to inevitably raise capital is another matter.
One stock that is further along the development curve is Doray Minerals (DRM), which poured its first gold recently at its Andy Well mine 45 kilometres north of Meekatharra, Western Australia. An Under the Radar favourite is the producer Northern Star Resources (NST), which has a small reserve base of 150,000 ounces of gold at its Paulsens mine near Kalgoorlie. This equates to a mine life of just 1½ years. The hope for shareholders is that it can extend its mine, which Bill Beament's team have been successfully doing since it first paid $40 million for the mine in mid-2010.
Geologists on the ground are now talking up the prospects of its recent Titan discovery, which is a mere 100 metres from the Paulsens mine and touts a hole that returned 6.9 metres at 24.7 grams a tonne in gold.
When the hangovers from Diggers fade, your columnist believes that the producers who don't have to go back to the market for money will sleep easier than pure explorers, who do.
It's one thing to find gold; it's something else altogether to find finance.
Richard Hemming edits the fortnightly newsletter Under the Radar Report: Small Caps.