Scratch a financial advisor and ask about investing in gold – it is almost certain one of their suggestions will be to buy companies actually producing the metal and, preferably, paying a dividend.
But Monday saw the market action elsewhere and the cheaper the stock, the more enthusiasm.
There are various currents swirling in the gold space just now: the stories that physical gold is getting scarcer in supply, the rapidly disintegrating global economy and gold coming into its own as the ultimate store of value, the International Monetary Fund (IMF) scaring investors with its doomsday pronouncements, other commodities threatened by the global downturn, the major Chinese producers clearly signalling they are desperate for more ounces, and so on.
What the present market is telling us, it seems, is that a gold frenzy is tightening its grip. In frenzies, reliable production numbers and positive cash flow don’t count for much.
Rather, the “punters” start looking for the cheaply priced stocks that can return a 500% profit in short order.
Aruma Resources (ASX: AAJ) announced it has identified three priority targets at its Scotia South gold project in Western Australia, an area located on a strike extension from the Panda gold discovery by Pantoro (ASX: PNR).
By close of trade on Monday, Aruma’s stock has gone up 66.77% to $0.05 on heavy turnover.
Castle Minerals (ASX: CDT) reported “highly anomalous” gold from surface sampling at its Wanganui project near Meekatharra. Its stock by close of trade was up 25% to $0.01.
Meanwhile, Red Mountain (ASX: RMX) rose 50% on applying for three tenements in the far northwest of New South Wales adjoining the ground held by Manhattan Corp (ASX: MHC), which last week announced a gold discovery at its Tibooburra project. Manhattan, incidentally, also rose by Monday to trade as high as $0.021 intraday, up 23.5% on no news.
Great Southern Mining (ASX: GSN) was queried as its shares rose 26.26% to $0.125, the company having commenced drilling at its Cox’s Find gold project earlier this month.
Even stalled uranium hopeful Toro Energy (ASX: TOE) saw a 12.5% to $0.009 intraday increase on news that it had completed a second gold hole — and even though there were no results announced.
Yet, at about the same time on Monday, turnovers in the bigger producers were, unlike the penny stocks, feeling the drag effects of a market where the All Ordinaries had plunged by 96 points or 1.6%.
And the juice was hardly flowing in the middle ground, either.
Godolphin Resources (ASX: GRL) sent out a release that “exceptional gold targets” had been identified for drilling at is Gundagai South project. That’s gold and the Lachlan Fold Belt — but only a $0.01 gain to $0.19 with a turnover of only 264,000.
China looks to juniors to solve its ounces crisis
The Chinese, now clearly experiencing what has been predicted for several years — a diminishing gold resource at home — are now eyeing foreign juniors as a means of replenishing their in-ground resource.
Zijin Mining Group completed the takeover of Canadian miner Continental Gold for C$1.3 billion (A$1.38 billion) in early March. Then this month, it closed the deal for Canada’s Guyana Goldfields.
Shandong Gold Mining, one of China’s biggest gold producers, made a bid for Toronto-listed TMAC Resources and then moved on to make an offer for Cardinal Resources (ASX: CDV) and its Ghana gold project.
Shandong is also promoting the idea of a national gold stockpile being developed in Beijing.
Graphite companies moving into gold
Warwick Grigor of Sydney-based Far East Capital recently pointed out that, apart from a handful of players, the graphite space has been a huge disappointment for Australian investors.
Mr Grigor is also the non-executive chairman of the graphite-related manufacturing company, First Graphene (ASX: FGR).
Mr Grigor said dropping graphite in favour of gold is understandable.
“It should be seen as a reasonable response to the purgatory that has captured so many graphite companies, especially those in Tanzania. There is no future there,” he said.
“There are still many graphite companies in other jurisdictions out there promoting their wares, but don’t get fooled again,” Mr Grigor added, suggesting that companies moving to gold are at least giving their shareholders a “fighting chance”.
The implication seems to be that other graphite players might follow suit.