The gold price continues to struggle, having fallen into the lower $1,700-an-ounce range. Due to the falling gold price, junior gold miner stocks have also been weak, but despite that, many of the companies are moving forward with new projects.
RBC Capital Markets analyst Wayne Lam noted recently that junior gold miners had lost their momentum due to weakness in the gold price. Further, investors have been shifting capital to other sectors like battery metals, cannabis and cryptocurrencies. Lam said junior gold valuations fell to $57 an ounce on an EV per ounce basis, marking a 20% year-to-date decline. Meanwhile, base metal valuations have accelerated this year, climbing 25% over the last three months.
Even though the gold price has fallen, junior gold miners are moving forward with numerous projects, many of which are fully funded for this year. RBC has met with several exploration-stage companies focusing on regional projects, like New Found Gold and developers pushing through engineering and optimization, like Chesapeake Gold (OTCMKTS:CHPGF).
RBC also met with companies with self-funded drill programs targeting much greater exploration upside, like Anaconda Mining.
Project Updates
Lam said Anaconda’s Goldboro project is advancing to preliminary economic assessment during the second quarter after a resource update in February.
The number of ounces from the project increased from 1.4 million to 2.7 million due to a new block model based on an underground bulk sample and additional lower-grade ounces between higher-grade zones. Anaconda is targeting about 100,000 ounces per year over the next decade, with the potential for open pit material next to current pit shells.
Chesapeake Gold’s Metates project in Mexico is one of the largest undeveloped gold and silver deposits in the world. It has more than 18 million ounces of gold and more than 500 million ounces of silver in reserves, although it is also a refractory orebody.
The recent Alderley Technology acquisition provides proprietary technology that could enable the firm to process refractory ore. The previous feasibility study called for $1.9 billion in Phase 1 capital and $1.6 billion for Phase 2 due to the need for pressure oxidation. However, the new technology will significantly lower capital expenditures and the company’s environmental footprint.
New Found Gold has a 200,000-meter drill program that’s about 10% completed with $35 million budgeted for this year. The project has eight active drill rigs, with three focused on Keats and Lotto, four testing regionally along the Appleton Fault and one along the JBP fault. The project still has a large number of assays pending due to a backlog and delays. The company is also planning a U.S. listing for the second quarter.
What All This Means for the Junior Gold Miners
Pushing forward with more and more gold mining projects could be good or bad for the junior gold miners. On one hand, it could prepare them for a much higher gold price down the road. After all, it makes sense to mine while the price is lower to take advantage of a higher price later. However, if the gold price doesn’t rebound, junior gold miners could take a hit from all of these capital-intensive projects.
Many factors affect the gold price at any given time, and this year could bring some big changes to several of those factors. For example, gold often rises during times of inflation. It seems logical to expect some level of inflation in the wake of the large amounts of stimulus that have been pumped into the economy. However, some economists don’t expect significant inflation despite all the stimulus.
The strength of the dollar has also been a major factor for the gold price. The dollar index has been falling, but the greenback remains quite strong as the index hovers above 91. Economic data will also continue to drive gold prices, but a recovery isn’t necessarily a good thing for the yellow metal. Safe-haven assets like gold start to look less attractive during periods when stocks and other risky assets are moving up, up and away.
Where Will the Gold Price Go Next?
The good news for gold miners, at least in the near term, is that gold prices have steadied since the European Central Bank decided to increase its pandemic emergency bond-buying program. Although gold has struggled, OANDA analyst Edward Moya said the yellow metal has had “a couple of good weeks.”
He warned that the gold price could be choppy this week until the $62 billion auction of seven-year Treasury notes on Thursday. He noted that the bond market selloff accelerated following weak interest in the seven-year notes in late February, which means this week’s auction could be a make-or-break moment for the bond market and especially the U.S. dollar.
Although higher yields are putting downward pressure on the yellow metal, that could start to change as central bank policies in emerging markets diverge from the Federal Reserve’s policies. Moya believes central bank demand for gold will remain strong and that we are probably close to the end of the streak of selling by gold exchange-traded funds.
If Gold ETF Flows Turn Around
If that turns out to be true, it will mark a significant turnaround for the gold market and could lift the price of the yellow metal. The World Gold Council reported earlier this month that gold ETFs lost 84.7 tons or $4.6 billion in value last month, a 2% decline in assets under management.
February was the third month of outflows for gold ETFs in the last four months. It also marked the seventh-worst monthly loss in holdings in recorded history. Global assets under management by gold ETFs now stand at 3,681 tons or $207 billion. The last time levels like those were seen was in June 2020, when the gold price was close to the February closing level of $1,743 an ounce.
Gold ETF flows have been a significant driver of the gold price over the last year or so. As a result, if they switch from outflows to inflows, we could see much-needed relief in the yellow metal’s price.
On the date of publication, Michelle Jones did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Michelle Jones is editor-in-chief for ValueWalk.com and has been with the site since 2012. Previously, she was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Email her at Mjones@valuewalk.com.
