Gold Explorers Set to Run: Why You Should Act Now

Last Monday I attended the Pitch n Pizza Evening in Sydney. It was hosted by the Association of Mining and Exploration Companies and Tau Media, a Sydney-based marketing firm.

This event brought together mining investors, company insiders, brokers and other interested individuals to rub shoulders at the Rooftop Sydney.

Six companies presented, showcasing their projects, goals and achievements thus far. All this done within seven minutes.

It was quick, to-the-point and meant to stir you to action.

Initially I had expected 40–50 attendees. Here’s a picture of the scene early in the evening:

You can see a few empty seats and a bit of space when I took this photo.

It didn’t take long before the seats were occupied. Others who had filed in soon partially blocked my view of the presenters.

The bar floor was quite packed as there were easily 70–80 people.

And that wasn’t it. The RIU Sydney Conference Drinks happened after.

It was like a Friday evening happy hour — but composed of a more refined yet similarly jovial crowd.

I found it hard to hold a conversation even though I could project my voice in a 300-seat theatre without a microphone, a skill I refined from my years of lecturing in universities!

So you get the idea that it was a lively event.

In case you’re wondering, the companies presenting weren’t large-cap lithium or uranium producers like Pilbara Minerals [ASX:PLS], Mineral Resources [ASX:MIN], Paladin Energy [ASX:PDN] or Deep Yellow [ASX:DYL].

They were small-cap explorers looking for gold, silver, base metals and rare-earth elements (REE).

If you’re aware of these companies, or even own some, you’d know how difficult things have been the last two to three years.

You might even want to dump these companies now, especially if they’ve raised capital for the nth time in the last three years.

After all, why invest in a bottomless pit?

If you’re feeling this way, today’s article is meant to change your mind.

Mining explorers: Where investor sentiment trumps fundamentals

Things haven’t been good for mining investors from 2021–24, unless you were in lithium, rare-earth elements, uranium or iron ore.

Even if you invested in these four commodities, three have already pulled back significantly.

If investing in commodities is a rough ride, mining companies pose even more challenges.

The rising price of oil in 2021–22, border restrictions and staff shortages all contributed to a perfect storm for mining companies.

For explorers, it’s even more difficult.

As is the case with the markets, investors focus more on the larger and more established companies first with the smaller companies only getting attention when the investment theme is hot.

Explorers are small companies with big dreams, constrained by a small budget. To their advantage, they can operate more flexibly. At least there are little fixed costs as they don’t run a mine operation with a large staff base.

But being small companies, they’re tied to investor sentiment and the commodity price cycle.

More often than not, their share price won’t reflect their underlying potential.

And it can go both ways. They may be ridiculously overvalued in a bull market and dreadfully undervalued in a bear market.

Those who can read the commodity market and identify a company’s driver of value will enjoy the most returns over the long term.

Rising from the slumber:
Gold explorers getting set to run

You may have heard me talk for some time about how gold explorers and early-stage developers are deeply undervalued relative to gold and the more established producers.

I’ve shown it visually by plotting the relative performance of gold, the ASX Gold Index [ASX:XGD] and the Speculative Gold Stocks Index that tracks the performance of over 60 ASX-listed explorers and early-stage developers.

You can have a look below:

It’s clear gold has run ahead of gold stocks. But that’s because the difficult operating conditions in 2020–23 have held back many mining companies, not just gold.

However, in the most recent quarter, there have been increasing signs that these challenging conditions have peaked. Besides the mining companies affected by the unusually heavy rains in Western Australia in March, operating conditions have improved, staffing shortages have eased and costs are falling.

The next few quarters will likely see the gold producers deliver more generous profit margins. This will help the ASX Gold Index [ASX:XGD] break out of the 8,000 level and potentially set up a strong run in this space.

And that’s when the explorers could deliver exciting returns.

Just like they did in 2009–11, 2016 and 2020 when gold went on a bull run. Some explorers delivered quadruple-digit percentage gains.

The signs are there, let The Australian Gold Report lead your way

Of course, there are no guarantees this will happen again. These stocks are risky and speculative.

But a few companies are showing potential signs they could be poised to benefit in the coming bull market.

One gold explorer based in Western Australia has recently merged with its neighbour. The company owns a processing plant that could resume production and transform the company into a junior gold producer delivering high-margin ounces.

Another is a South Australian late-stage gold developer that has steadily grown its gold deposits. In the past month its share price rallied around 25%.

It recently raised capital from interested institutional investors to fund its development. As funds came thick and fast, shareholders had to jump quickly on a share purchase plan that closed early.

Another is a copper and gold explorer in New South Wales who found a significant porphyry deposit. For some time, the price ground down along with investor apathy. Then, all of a sudden, it secured a joint venture partner.

Its share price rose by as much as 350%.

Right now, I see more companies in the pipeline are waiting to take off. Many have compelling stories.

They’re waiting for the right catalysts. These may include securing a joint venture partner, releasing a resource upgrade, finalising a mine plan, or securing critical funding to accelerate their projects.

If you want to learn more about which companies might be the next to take off, why not sign up to my precious metals investment newsletter, The Australian Gold Report?

Getting the basics right is important as you should first build your core precious metals portfolio.

I also have three explorer and early-stage developer recommendations waiting for you to consider.

Don’t hesitate much longer! The gold stock bull market could pick up pace. You could find yourself priced out of this market!

God bless,

Brian Chu,
Editor, Gold Stock Pro and The Australian Gold Report