$1400/oz could mark rebirth for gold juniors – Orefinders

Should the gold price be sustained at $1 400/oz – a level it breached at the start of this week – it could be the beginning of a rebirth of the neglected junior gold mining sector, which has lost significant value over recent years.

This is the view of Canadian gold explorer and developer Orefinders, which said on Wednesday that should gold hold at the key psychological threshold of $1 400/oz for a few months, it would restore confidence to the market and return generalist capital to the sector.

The company believes that gold juniors were set to outperform and that high-quality juniors could offer remarkable returns.

“. . . in time, all boats are likely to rise. But the cream of the crop will dramatically outperform the average,” Orefinders said in an update to its investment thesis, originally published in September last year.

Applying the 80:20 rule, or Pareto’s principle, the company argued that 80% of junior gold companies were “little more than long-term liabilities”, while 20% were “good companies with interesting assets run by quality management”. If a further 80:20 deviation is applied to the 20% so-called good companies, 4% of juniors should deliver mines or trade sales within a reasonable investment horizon and the remaining 96% could offer “phenomenal trades” in the near term, but they have longer term risks.

Orefinders said that it believed there was an opportunity to “get ahead of the curve” by evaluating gold equities that correlated, but lagged the gold price movement. Whereas the gold price increased by about 10% in the last 30 days, many gold majors have witnessed a 25% jump in share prices.

“While perceived low-risk companies like Barrick and Kirkland Lake Gold have seen a 2.5:1 increase to gold price, the juniors, who’ve lost 90% of their value since 2012, are poised to deliver many multiples more than the majors have thus far provided,” the company said.

Gold prices rose to a six-year high on Tuesday, driven by signs that the US Federal Reserve could cut interest rates later this year, owing to economic uncertainties resulting from the US-China trade war. The International Monetary Fund has also lowered its global growth forecast for 2019, from 3.5% to 3.3%, prompting investors to look for safe-havens.

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