Australian Gold Sector Surges 19% so far in 2016 – Much more to come

Key Points

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The Dawes Points view on gold stocks has been consistently pushing Australian growth stories where rising output, falling costs and revitalised managements have made compelling investment cases.

The low PERs, the high cash levels supporting a growing dividend stream and some excellent exploration stories for these companies that have also benefitted from the lower A$ giving an A$ gold price of over A$1,500/oz.  Excellent circumstances for investing.

The portfolios have done well with the new 2016 Dawes Points Portfolio being up 19.8% so far this year and the 2015 Portfolio up 102%.  Note these are investment positions and no trading is done.

The general market place is still skittish about the US equity markets, the Shanghai market and the local banks and, well, just about everything.

Our portfolios, however, are doing just fine thank you. This is the 2016 Portfolio.

Following the share of market turnover of the ASX S&P 300 Gold Index has been a very useful task with this indicator giving us a great deal of confidence in the Dawes Points views.

So have a look at this!  The Gold Sector made up 14% of ASX AllOrds turnover in the past 2 weeks and the 5 week moving average hit 12.6% while the 12 week is 7.5%.  Astonishing!

I was happy that the downtrend had broken but the moving averages of the last peak in the sector have just been left behind.

There is a massive need to BUY!  The market is drastically underweight.

The Index is only just starting to move and this break above 3000 should get close to 6000 in 2016.

And the Dawes Points Gold Index corrections chart is suggesting a massive rally is about to unfold.

The driver is primarily that gold stocks are still very cheap against the A$ gold price.

The Australian stocks are leading their North American counterparts but a high volume break out also occurred last week.

And I hope you recall this very long term graphic of the Barron’s Gold Mining Index back to 1940.

And the North American stocks are trading at less than 25% of previous 25 year history. (plus graphic)

Gold stocks will outperform gold and probably almost everything else for the next few years.

The portfolio gives everyone a mix of size, liquidity, dividends, growth and risk so I am very happy to reinforce the selections.

Newcrest has more gold resources than anyone else and improvements will allow resumption of dividends.  Northern Star is just brilliant and Oceania Gold has some excellent leverage. Evolution has acquired a massive swag of gold resources over the past couple of years and will be a big player in the Zuleika Shear zone.

These stocks will be the dividend paying cornerstones of every pension fund for the next decade.

Blackham will continue to please everyone for quite a while and my target of A$1 in my research report in early 2015 stands firm.  This is a potentially very long mine life play.

Doray, Saracen, MetalsX and Gold Road among the developers are flying.

Tribune is outstanding and the market place will soon cotton on to the significance of Pegasus and the East Kundana JV.  Its 140koz of gold bullion in the vaults currently worth over A$4.00 per share is an added golden bonus.

The offshore players of Medusa and Resolute are just too cheap.

The smaller growth players look very exciting and will be happy to talk to anyone about them.

There are of course many other attractive gold stocks out there( like Dacian Gold and Perseus)  and they will be covered soon but let’s just stay focussed for now.

Golden Eagle IPO

The IPO for Golden Eagle will raise A$4.4m for company holding substantial tenements along the Bullabulling Shear Zone and surrounding the 3.2moz Bullabulling resource.

Those of you familiar with the highly productive but still vastly underexplored Zuleika Shear currently being made even more famous by NST and EVN might recognize a roughly parallel structure further west from Kalgoorlie but under more colluvium cover.  The Bullabulling 1g/t resource overlies some impressive higher grade drill intersections.

Golden Eagle has the Geko gold deposit that has the potential of being in production in the medium term after listing and provide substantial cash flows to fund exploration on the large area of under explored tenements.

You can download the Replacement Prospectus here. http://www.goldeneaglemining.com/prospectus/

Don’t be put off by the Supplementary Prospectuses – it was very difficult out there late last year.  Only one resources stock was listed in 2015 and Golden Eagle could be the first gold stock listing in about three years.

I won’t be commenting on the US$ gold price in this Dawes Points.  It will move up strongly in its own time which I think is not too far away.

I will just mention briefly however the industrial metals.

No recession or downturn I ever experienced had declining LME inventories as a market signal.

The continual bashing of commodities has been in contrast to record consumption levels for most metals and declining LME inventories.

There are major issues in aluminium and nickel that detract from the messages from copper, lead, zinc and tin and even though their stocks are tumbling too we can only focus on how tight these markets really are.

And the Australian Gold Sector is leading the world out of this miserable pricing time.  Gold stocks, gold, metals companies, industrial metals, technology metals, then oil, oil and gas companies and the bulk commodity producers will follow.

So participate in the gold sector now with a good portfolio approach and let’s have some real fun.

I own NST, NCM, GOR, DRM, MLX, CGN, TYX, TBR, BLK, TNR, MML, RSG, GEE

8 February 2016
Edition #45

 

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