Gold developers caught in horse latitudes

July tends to be the lowest volume month of the year for the precious metals sector, which often means stocks tend to drift lower. Interest in the sector is so low currently that, rather than attracting new investors, news releases are providing exit opportunities for those who are disenfranchised with the sector.Revival Gold's prefeasibility study for its Beartrack-Arnett project in Idaho, US which included an expansion to a 4.6Moz Au resource at a finding cost of US$6/oz, and a 24% post-tax internal rate of return (IRR), yet the market barely noticed. The company traded less than 22,000 shares on the day of its release."It is a weak market so it is not surprising we have not seen a pop. However, we cannot confuse the day-to-day market with what these results mean for long-term investors in the space, strategic partners and the ilk," Revival Gold chief executive Hugh Agro told Mining Journal.Wallbridge Mining received a similarly lacklustre response to a late June preliminary economic assessment (PEA) on its Fenelon gold project in Quebec. Its share price didn't move despite trading almost one million shares, four- or five- times its average. Its PEA outlined production of 212,000ozpa of gold for over 12 years, with an IRR of 24% at $1850/oz gold, following an initial capital spend of $645 million.Integra Resources did see a 14c pop in its share price after announcing a PEA for its Wildcat and Mountain View projects in western Nevada in late June, although on just 134,000 shares traded. It subsequently traded fewer than 60,000 shares per day. Its PEA outlined production of 80,000ozpa of gold equivalent for 13 years with an IRR of 49.7% at spot metal prices following an initial capital spend of $115 million to begin operations at Wildcat. B2Gold's Back River acquisition in Nunavut Canada Analysts say the market has been unimpressed by the pipeline of projects being advanced. "It has been a while since the market has been presented with a truly economic project. A lot of the latest studies have been prepared at elevated gold prices and are still only squeezing out slim margins. Companies are moving CAPEX into sustaining OPEX and other shenanigans. Smart investors, the only investors left right now, see through that, and shrug their shoulders," Kai Hoffman, chief executive of Soar Financial told Mining Journal."Gold-focused equity investors prefer either the excitement of discovery, or cash-flow. The Lassonde curve is real and the trough between the two ‘up' periods is the widest/deepest it's ever been, and for various reasons it's only going to become more of a no-man's-land. Most predevelopment gold projects, in the global pipeline, are not very good. Too much capital is spent on discovering and advancing gold projects, so the overall quality is low, on an absolute basis," Neil Adshead-Bell of Cuple Advisory told Mining Journal.A Toronto-based gold equities analyst said capex inflation and development cost overruns have seen the fizz in the sector go flat, with many remembering investments made by the sector in 2010 and 2011 in low-grade, bulk tonnage ounces which nearly destroyed the sector.Gold stocks fell about 85% in the aftermath of the last bull market, and they have yet to recover to the levels they were trading at then. The GDX gold miners ETF managed by VanEck is 50% lower and the GDXJ 75% than then.The Lassonde curve is real and the trough between the two ‘up' periods is the widest/deepest it's ever been"Investors are gun shy of developing anything. The capex overruns (Argonaut Gold, IAMGOLD, Marathon Gold) have overshadowed some remarkable successes like Orla Mining. I'd suggest that G Mining Ventures and Artemis Gold have a better-than-average chance of success, which may build some momentum for these developers," the analyst told Mining Journal.Junior Miner Junky newsletter author David Erfle thinks investors are frustrated by gold's repeated inability to breakout beyond $2000/oz."Gold has bumped-up against $2000 for three times in recent years. People get excited when it rises then depressed when it fails to hold. It is costing more to explore, to drill, to construct and get it out of the ground when the gold price is going nowhere, so it seems that it is three strikes and you're out. This won't change until $2000/oz goes from being a 12-year ceiling to a floor," he told Mining Journal.Others believe the lack of excitement in gold equities is compounding into a downward spiral of interest as a lack of opportunities to make significant gains sees investors leave."I have zero gold exposure as I do not see any juniors worth owning. There have been no big wins [in recent history] other than Great Bear Resources [by Kinross Gold in 2022] so no money is being recycled. I usually have 50% gold in my portfolio, and now I have none. Investors have consistently been losing money in the sector. The sector needs to make some money for investors through discoveries, or find new suckers," a Vancouver-based investor told Mining Journal.With investors shunning growth and development, what action there is in gold equities has been in mid-tier producers, such as Calibre Mining, Dundee Precious Metals and Torex Gold Resources."We see institutions putting money in mid-tiers who are not looking to build projects, which have good margins and generating good free cash flow, where they don't have to worry about bringing things online. They are not even really interested in the seniors. B2Gold is a great project executor and investors don't want that at the moment. Until the gold price makes new highs and people can make money again in the junior market, it is dead," a Toronto financier told Mining Journal.Among the explorers, very few companies are getting investor attention, with the exceptions being companies including as Snowline Gold in Yukon, Canada and Collective Mining in Caldas, Colombia."Drill plays are receiving less love than the developers. They are not being rewarded for their results. Investors are selling them and waiting for the next private placement to invest in the companies they like and get a free warrant," said Erfle. Drilling that excites at Collective Mining's Apollo target in Caldas, Colombia M&AThe prospect of mergers and acquisitions often stimulates investors to take positions in companies they consider to be good takeover candidates. However, despite the market capitalisation entropy of junior gold stocks M&A activity is sparse. One of the few recent transactions was B2Gold buying Sabina Gold & Silver in April for $824 million, at a relatively modest for $130/oz for resources in the ground.Analysts believe this is because there are few attractive purchase options and because the management teams and boards of juniors do not want to transact while their share prices are depressed."I think most producers would love to [buy juniors] but valuations are so depressed that boards cannot approve deals. We have just witnessed this with Endeavour Mining making a behind-the-scenes bid for Kinross Gold [which was rejected]," said Hoffman."The major gold companies are not buying the juniors because they suck and are not big enough to move the needle for them, so why do anything?" said the Vancouver investor."The overall global portfolio of predevelopment gold projects is not very good, but there's also a preference from the management teams and boards at producers for smooth sailing, rather than taking on a complex permitting and/or build scenario. Few company executives or directors think about the company in ten years. Most have compensation and KPI's linked to quarterly and annual performance. Big shareholders still prefer capital returns over an aggressive growth profile," said Adshead-Bell.Turning point?Resource depletion will eventually also mean gold producers, particularly mid-tier companies, will have to become project buyers at some point. "At some point, producers will be pushed against a wall and will have to buy these companies or else they won't be a going concern, but right now, the trend seems more in favour of producers buying producers," the Toronto analyst said."There is really good value in some of these names. Within three months there will probably be a good gold run again, and money will come into the space," the Toronto financier said."I keep adding to stocks I am down 30-40% on as I know the majors are going to have to replace ounces and that they will have to buy these companies eventually," said Erfle.Agro is convinced Revival Gold will eventually get market recognition."The banks and financial advisors tell us that they care where a project is located and what the composition of the capex is. We don't have a lot of earthmoving, pre-stripping or roads to build, so we will not see the escalation in capital costs, which can blow out development costs. Out capex is mainly mechanical equipment, which is a low-risk investment as it is a liquid asset," he said.Agro believes that while retail investors are noticeable by their absence, "there is a lot of money out there in the bank accounts of mid-tiers and majors, private equity and mezzanine financing houses, and in royalty and streaming companies, and they all need projects that will sustain them in the long term," he said.Revival's exploration at Beartrack-Arnett aims to add to the eight-year open pit, heap leach life detailed in the PFS from areas with potential to host high-grade oxide, starting with Roman's Trench then Haidee and the new Ridge zone."By the time we are at feasibility we will be at 10 or 12 years of mine life. Even with eight years, we have a project with a very good return with a 24% post-tax internal rate of return, which means there is a lot of room to fund the project and leave a margin for shareholders, just on the P&P reserve," said Agro.

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