The year 2020 has already delivered what HM Queen Elizabeth would refer to in her end of year speech as an Annus Horribilis. It is still only April 2020, and Covid-19 continues to wreak almost biblical levels of havoc and human tragedy across the globe. In our previous article on junior gold explorers, we stated that it seemed trite to discuss investment opportunities in the midst of the ongoing battle against CoronaVirus. But life does go on, and so does mining exploration, even with the movement restrictions currently in place.
Gold Set To Rebound Following Monetary Stimulus Measures
Although gold has retreated from the late March highs of $1700 oz, at $1646 the yellow metal still sits close to year highs, well above the 2019 highs of $1277 last August.
Kitco, a website dedicated to gold and metals believes a major rebound in gold is just around the corner as prices look ready to surge on massive global monetary policy stimulus and unprecedented fiscal policies. United Overseas Bank (UOB) head of markets strategy Heng Koon said their forecast is “for gold to rebound significantly in the quarters ahead to USD $1,650 in 2Q20, $1,700 in 3Q20, $1,750 in 4Q20 and $1,800 in 1Q21.”
Image courtesy of BP Trends
“Once the USD funding crunch potentially dissipates across 2Q20, massive global monetary policy easing coupled with unprecedented fiscal policy stimulus will light the fuel for further gold strength.”
Heng also added that global central banks “have not only floored rates near zero but many have also entered into large Quantitative Easing programs. These significant stimuli bode well for gold and will be the fuel for gold’s rally once the USD funding crunch abates across 2Q.”
This compelling backdrop continues to drive healthy levels of investor interest in junior gold explorers. Across the globe, the focus on gold is manifesting itself in investor speculation into small cap explorers with quality projects. Most small explorers however only have one or two key project in their asset arsenal, leaving little room for any disappointment. However, there are a handful of micro-cap gold exploration plays offering a broad spread of assets, and consequentially an attractive risk profile with significant upside potential.
Once such company is AIM listed ECR Minerals (AIM: ECR), which has 100% ownership of five gold exploration projects in Central Victoria, Australia, and four exploration licences in the north-eastern Yilgarn region of Western Australia.
ECR’s Bailieston at the Centre of the Current Gold Exploration Boom
ECR’s Victoria projects include Bailieston, Avoca, Timor, Creswick and Moormbool. Indeed Bailieston, which targets epizonal / epithermal gold mineralisation of the Melbourne Zone, is at the epicentre of the current gold exploration boom in Victoria, being located close to the highly successful Fosterville mine owned by Kirkland Lake Gold. Recently, Australian mining giant Newmont arrived in the district with an application for ground immediately to the north of the Black Cat prospect.
Study Data Endorses Creswick Potential
During Q4 2019, ECR reported ‘nuggety gold mineralisation’ in the Dimocks Main Shale prospect at Creswick, some of which proved to be exceptionally high grade. Creswick has long been viewed as a potential pivot project for ECR after the highest grade duplicate result of 80.97 g/t gold came from a 1 metre interval that originally assayed 44.63 g/t, confirming the original findings announced on 8 May 2019.
On March 27th, ECR announced the results of a study carried out by Dr Dennis Arne, a pre-eminent consulting geochemist in Victoria, whose experience includes extensive consultancy at the highly successful Fosterville gold mine in Central Victoria owned by Kirkland Lake Gold.
The well-regarded Dr Arne’s involvement was seen as a solid endorsement of Creswick’s potential, and indeed the results did not disappoint, as ECR CEO Craig Brown pointed out.
“We are very pleased with the results of this study, which show good indications of hydrothermal fluid flow related to gold mineralisation in a number of drill holes at Creswick. Importantly, the variation in the results, with some areas ‘lighting up’ and others not, is potentially useful for identifying gold-bearing shoots.”
Brown added that the results “underline the significant gold exploration potential that we believe exists at Creswick, where our tenement position covers approximately seven kilometres of the Dimocks Main Shale (DMS) trend, of which our 2019 drilling tested only approximately 300 metres.”
Windidda Progress
ECR’s Windidda Gold Project, based in the Yilgarn region of Western Australia originally consisted of a package of nine exploration licence applications covering a 1,600 square kilometre area with the potential to host komatiite hosted nickel-copper-PGE (platinum group element) mineralisation, as well as orogenic gold. Five exploration licences have been granted, and in its full year results statement at the end of March 2020, ECR said the remaining four licence applications had been withdrawn, in light of objections to the expedited grant procedure from native title parties and the findings of preliminary desktop work to assess the prospectivity of the licence areas.
Consolidation, R&D Cash Refund and Focus
A micro-cap gold explorer can only operate so many projects and licenses, and indeed with the burgeoning potential of Creswick now at front and centre, the board took the decision to sell its wholly owned Argentine subsidiary Ochre Mining SA, which holds the SLM gold project in La Rioja, Argentina. The sale to Hanaq Argentina SA still sees ECR retain a Net Smelter Royalty of up to 2% to a maximum of US$2.7m in respect of future production from the SLM gold project, while removing ongoing costs associated with acquiring and running an exploration license.
There has been further good news on the funding front too, as the group also received a significant cash refund under the Australian government’s R&D Tax Incentive scheme. A$318,972 (approximately £171,000) was received in relation to the financial year ended 30 June 2018, and received a further refund of A$555,212 (approximately £295,515) in relation to the fifteen month period ended 30 September 2019.
The qualifying R&D activities relate to research into turbidite-hosted gold deposits within the Company’s exploration licences in Victoria. It goes without saying that these two refunds have also provided a significant boost to ECR’s cash position.
The biggest boost however came on Monday 6 April 2020, when, in the midst of the upheaval and disruption caused by COVID-19, ECR announced that it had raised a further GB£500,000 in a placing at 0.5p. That ECR was able raise funds in some of the most challenging stock market conditions in living memory more than anything else underscores the quality of the asset portfolio.
Still trading on a miserly GB£2.5m capitalisation, the market has ascribed little more than the value of the administrative work undertaken to secure the licenses, with no premium whatsoever for the results from Creswick or any of the other work undertaken to ascertain the prospectivity and value of ECR’s projects.
Selected Junior Gold Explorers Offer Great Value
Amid unprecedented efforts to limit the spread of CoronaVirus, the fiscal and monetary stimulus measures announced by the world’s major economies over the past month are global policy events without precedent in peacetime. Gavyn Davies of the FT pointed out that the increase in fiscal spending and loans in the US this year alone “will reach more than 10 percent of GDP, larger than the rise in the federal deficit through 2008 and 2009.”
This wholly supports the UOB / Kitco view that the gold price is set for a major rebound in the months ahead. As such, this rebound is likely to be reflected in the valuations of junior gold mining explorers with strong project portfolios. Fully funded for the coming year, and with nine projects and licenses in key territories across Australia, ECR Minerals should be integral to any junior gold explorer portfolio as the world grapples with the challenges and uncertainties of the Covid-19 pandemic.
References:
Kitco – Here’s how gold prices will get to $1800 in the next three quarters – https://www.kitco.com/news/2020-04-01/Here-s-how-gold-prices-are-going-to-1-800-in-the-next-three-quarters-UOB.html
FT – Gavyn Davies: Can the world afford fiscal and monetary stimulus on this scale? – https://www.ft.com/content/0f289d20-6e97-11ea-89df-41bea055720b