The recent high price of gold has pushed shares of both gold miners and explorers higher.
But, Australia’s largest gold miners took a tumble yesterday as the gold price began to fade on the back of renewed optimism of economies reopening.
Gold is still trading at some of the highest levels we’ve seen in a while and is up 12.15% year to date in US dollar terms.
Blackham Resources Ltd [ASX:BLK], a small-cap gold producer operating in the Northern Goldfields of WA, shed 11% of its share price on the back of a drilling update.
BLK (blue) and gold price USD (red), source: Tradingview
Bad timing or bad results?
Yesterday’s results come from exploratory drilling at the Golden Age mine in the Wiluna mining centre, 750km northeast of Perth.
Historically more than four million ounces of gold has been produced at Wiluna from 20 open pits and three underground mines, including the Golden Age mine.
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The latest drilling results have turned up gold grades of up to nearly 40 grams per tonne (g/t).
Highlighted results include 1.8m at 39.68g/t from 47.3m, 2.6m at 21.74g/t from 49.1m and 7.1m at 7.47g/t from 185.9m, including 2.7m at 17.32g/t.
Golden Age is a free-milling mine. Meaning extracting gold from ore only requires simple crushing and no roasting or chemical treatment.
This is typically a low-cost method.
BLK’s strategy is to use free-milling open pits as a source of transitional cash flow for the next 18 months whilst the company moves to sulphide production.
In context, yesterday’s results could be considered pretty good and contribute to extending the ore body at Wiluna, which is already a very large gold system.
BLK says its strategy is to switch to sulphide production next year and boost annual production to 110,000–120,000oz.
But as opposed to free-milling, extracting gold from sulphide concentrates requires further processing, which increases production costs.
Yesterday’s sell-off of BLK could have been caused by spooked investors thanks to the gold price taking a tumble the night before.
With the price of gold now recovering, it will be interesting to see where the BLK share prices goes.
What’s on the horizon for gold?
While optimism in economies reopening after the coronavirus lockdowns may have pushed the gold price down, we might not be out of the woods just yet.
We are still waiting on Q2 economic data to see just how bad coronavirus has hit the Aussie economy.
Depending on how the market reacts to that news, we could see gold breakout of its current bounds.
Market expert Shae Russell is predicting a series of knock-on effects of the recent market crash that could be even bigger threats than the crash itself. If these are true, they could have big implications for the price of gold.
Kind regards,
Lachlann Tierney,
For The Daily Reckoning Australia
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