There is little doubt that we are currently in a full-on Gold / precious metals feeding frenzy as far as the mining sector is concerned, with the headline of $2,000 an ounce trumpeted from the Financial Times downwards. Of course, as well as the jubilation regarding an all time high, we have the pin the tail on the donkey competition in terms of how high the yellow metal can stretch?
Paul Tudor Jones
While some are suggesting that we could see Gold give a $10,000 plus Bitcoin a run for its money in coming months, it may be wise to seek the counsel of perhaps one of the most respected players in the financial markets.
Paul Tudor Jones of Tudor Investment Corp has effectively solved the conundrum, at least in the near term, by suggesting that the ratio of Gold above the ground to global money supply suggests that $2,400 is achievable. This represents as much as a 20% rise still from present levels. But perhaps key going forward is Tudor Jones pointing at the “above the ground” supply?
All About Production
This implies that what happens next is very much to do with Gold below ground. Clearly, speculation in the post Covid-19 environment – namely from March onwards, is how the relationship between supply and rocketing demand plays out. We should remember that as recently as March, Gold was languishing sub $1,500. This means that there is little point in looking at Gold miners who may produce a year or two down the line when the landscape may have changed. It is all about production now.
The point is underlined yet further for those looking to get Gold exposure – traditionally a hedge against inflation, and currently also a bet on the damage a second wave of Covid-19 / central bank money printing could do. Unfortunately, nearly 6 months down the line, we have seen most of the low hanging fruit in terms of Gold assets / plays already scooped up on the stock market. This is particularly the case if you wish to avoid the idiosyncrasies of the microcap space – where sharp share price gains have been seen, not necessarily backed by production figures.
But as far as North Queensland and Tasmania focused base and precious metals exploration and production company, NQ Minerals (AQSE:NQMI), from a fundamental perspective one can say that we are already “above the clouds” relative to its smaller counterparts, with nearly 1.3 million ounces of gold on their books.
Luckily for NQ it is not all about Gold. Silver has rallied from US$14/ounce to US$28/ounce in recent months on serious supply shortages. By the end of 2020 it has been reported there could be a deficit of 126m ounces. Plus, many players are seeing Silver to $50. NQ has plentiful amounts of the metal and is now producing over a million ounces a year from Hellyer from its 30m ounces of reserves. North Queensland – Sunbeam – is one of the richest historic silver mines based on past production, in Australia.
This is said particularly with reference to the latest productions from NQ’s Hellyer project in Tasmania. It announced record production for July, spurred on by recent plant upgrades to a rate of 1.2mtpa. While Hellyer produces a range of metals, the split for July was 461 ounces of Gold, nearly 90,000 ounces of Silver, with Lead at 4,075 tonnes concentrate, and Zinc concentrate at 1,509 tonnes means it is as diversified as it is rich.
For those who really want to focus on Gold and Gold alone, the kicker for NQ Minerals is waiting in the wings for production as soon as the end of the year: the Beaconsfield project, also in Tasmania. This project is in an area which has already produced 1.8m ounces. In addition, Beaconsfield boasts its own processing plant, is fully permitted, and has a replacement value not including reserves and resources of $80m versus NQ’s current market cap of £30m. As a comparison, replacement value for Hellyer is $300m.
Market Cap vs Assets
With such a disconnect between market cap and assets (not even including NQ’s Northern Queensland’s Ukalunda and Square Post) one can say that NQ is fully underpinned, and indeed, undervalued by the market. Of course, funding is as important to a mining company as what is under the ground. Any concerns have been put to bed as last month when it was announced that $41m of funding is to be provided by ING, raised this week to $55m. ING is certainly a blue chip name, which as well as cash, provides validation for NQ as an operator. With such backing, and the likelihood of more to come, NQ’s ability to develop projects to production is secure.
So why are we looking at a burgeoning mid-tier mining company with a modest rating? One of the sad aspects of the stock market in recent years is the way we appear to have gone from it being forward looking to distinctly backward. This can mean that stocks are trading at a half or even a tenth of locked-in value for extended periods. The downside for the management of these companies is frustration, the upside for value investors is the ability to bargain hunt.
Tier 1 Exchange
In the case of NQ Minerals, part of the drag on valuation has been its listing on the Aquis Exchange, something that can be a psychological block, if nothing else, on investors pressing the buy button. However, with NQ announcing its intention at the beginning of August to join a Tier 1 exchange, the excuse to sit on hands has been lifted. Indeed, they can take advantage of the discount NQ Minerals is trading at to Tier 1 listed peers ahead of time.