Paul Hissey of RBC Capital Markets outlines the landscape down under, highlighting the importance of optionality when looking at Australian mining companies.
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RBC Capital Markets Disclosure:
A member company of RBC Capital Markets or one of its affiliates expects to receive or intends to seek compensation for investment banking services from Dacian Gold Ltd. in the next three months.
RBC Capital Markets is currently providing Dacian Gold Ltd. with investment banking services.
No disclosures found for Evolution Mining Limited.
No disclosures found for Gold Road Resources Limited.
A member company of RBC Capital Markets or one of its affiliates received compensation for products or services other than investment banking services from Northern Star Resources Limited during the past 12 months. During this time, a member company of RBC Capital Markets or one of its affiliates provided non-securities services to Northern Star Resources Limited.
RBC Capital Markets is currently providing Northern Star Resources Limited with non-securities services.
No disclosures found for OceanaGold Corporation.
No disclosures found for Ramelius Resources Limited.
No disclosures found for Regis Resources Limited.
No disclosures found for Resolute Mining Limited.
No disclosures found for Saracen Mineral Holdings Limited.
A member company of RBC Capital Markets or one of its affiliates received compensation for products or services other than investment banking services from Silver Lake Resources Limited during the past 12 months. During this time, a member company of RBC Capital Markets or one of its affiliates provided non-securities services to Silver Lake Resources Limited.
RBC Capital Markets is currently providing Silver Lake Resources Limited with non-securities services.
For a list of all recommendations on the company that were disseminated during the prior 12-month period, please click on the following link: https://rbcnew.bluematrix.com/sellside/MAR.action
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I’m Charlotte McLeod with the investing news network and here today with me is policy director of Australian mining research at RBC thanks so much for joining me today no problems we’re here on the last day of the Denver Gold Forum what teams did you notice how was the
Sentiment feeling around the gold space yeah I felt like sentiment was you know overwhelmingly cautious although within that caution across the global sector I feel like there are sort of two very distinct groups you know there’s a lot of the Australian companies I cover are in fantastic position helped by you know
Low levels of debt or in many cases no debt and the currency is obviously helping to create additional margin for for producers outside of of particularly the US but but clearly where I’m on already here at this conference and so I think that overwhelmingly you know there
Is still a fair degree of caution from investors and and perhaps you know a fear of help helplessness is too strong a word but certainly you know a feeling of that is pretty tough out there for for some of the North American Gold borders you mentioned the Australian
Presence here is relative minority but we have people seem to be saying there’s more of them than usual is that something we’re gonna keep continuing to see that presence I think that’s a fair observation the Australians who have always come to this conference but it’s only within the last few years that
We’ve seen their company I guess that the size of our Australian companies has really boosted over the last few years we saw a lot of transactions through 2014-2015 we’re you know really small Australian companies were able to purchase assets out of some of the majors you know from Newmont and beric
And I think on the back of those purchases and some really good exploration they’ve been able to grow a significant businesses three years ago we had new crest in Australia with a market cap of 15 billion the next largest stock was maybe one and a half
Billion ok within the last 18 months we now have Northern Star and evolution who are around five billion dollars each so you know we’ve seen a whole lot of companies really step up on the back of you know a growing business but also increasing shareholder support what’s the landscape looking like in the
Australian research right now it’s obviously kind of booming right now and I’ve heard exploration is really on the up and up I think that’s a that’s a fair observation one of the constant criticisms of the Australian resource sector and particularly the gold miners is short mine life you know
In North America here companies tend to find an ore body drill it very extensively for sometimes a decade and then put it into production in Australia what we tend to do is if you find at the edge of an ore body rather than drill the whole thing out you would get into
Production straightaway and what that results in is companies frequently having only three or four years of reserves ahead of themselves but they’re able to sustain that for 20 or 30 or 40 years and so it’s tough for investors to build models if you can only ever prove you’ve got three years despite the
Historic evidence and so I think as the our companies have become stronger and and built their cash balance and their cash flow now is the time where they can really reinvest in themselves and perhaps catch up on some of that exploration that they haven’t had the
Funds to do and in the past five or so years so it’s definitely it’s definitely a booming part of our space and I think there is also a real reluctance to race out and do big M&A at the moment and so people are very keen to take the money
They’ve got and spend it on themselves first because that’s the low-risk option for investors should they be looking at ASX stocks right now and if you are if you’re a North American investor how do you go about integrating them into your portfolio yeah we’ve at IBC we’ve advocated for
Maybe 18 months now that Australian stocks were a fantastic place to put a part of your portfolio in particularly if you’re a global investor because as I alluded to before we have typically low to no debt strong cash flow great margins and an excellent exploration upside because of the lack of money that
Has been spent in the past so I still think over the next 12 12 to 24 months if the gold price were to trade sideways here I still think many of the Aussie companies can make their business better just organically so they don’t need that
Tail wind of a rising price to to really boost them in terms of a portfolio construction I guess one of my concerns about the Australian market is that is it is well priced people have already put their money to work in our market I’m a little bit
Concerned that if we do see the gold price rally then money will flow from Australia back to North America because people will want to own more leverage names in an in a rising price environment and that could lead to our local stocks underperforming so perhaps the best approach from a portfolio
Perspective is you need a blend of both are there any differences or specific ways that investors over here should look at Australian stocks as compared to the ones over here yeah I alluded to it earlier I think it’s really important that people try and understand the optionality beyond just the reserves
Which are printed in the jerk statement or the 43-101 there are a lot of companies in Australia if that’s all you want to pay for then they will look very very expensive but as I mentioned you know a lot of them have a very long history of being able to extend and
Replace those reserves and so investors really need to be comfortable with I guess the OP the optionality and the opportunity which which exists outside of the reserve statement either in for example M&I resources or inferred resources or even brownfield extensions which have rarely been drilled yet you
Know if there’s a drill hole 400 meters away and that shows the same kind of grades that’s not going to be in your resource statement but it does suggest there’s some continuity there and investors should at least think about how much ad value they would like to
Attribute to them that’s all from me unless there’s any final points you want to leave investors with I don’t know if you talk about specific stocks at all yeah sure so you know that the stock we really like in Australia is is saracen the ticker is SAR it has our top pick
Designation at RBC and that’s really on the back of you know it’s a company that’s got very strong cash flow it’s got two operations producing it around about three hundred fifty thousand ounces a year and we think they can get into a position to move up to four
Hundred thousand ounces annually for ten years now that’s not captured in the share price they have a 60 million dollar exploration budget this year so 6-0 in Australian dollars and that’s significant and and both of their key operating centers have all bodies which appear to be open down-dip and a long
Strike and I’m very confident that over the next 12 months the company will deliver a lot of very successful drill results and in 12 months time we’ll see a big uplift in in reserves and resources and that’s what’s going to help to underpin that extension to mine
Life and increase in production now of course once the company states that then we would expect everyone to factor it in the price so one of the reasons we’re optimistic on this stock is we believe that will happen into a month’s time and we’re trying to I guess lead you know
Lead that publication we were very confident about the geological prospectivity here thank you so much that’s all for me once again I’m Charlotte McLeod with the investing news network and missus policy with RBC