Company Interview / An eye on gold & copper stocks for rock solid performance

Key points:

The potential upward trend in gold price influenced by Federal Reserve actionsThe outlook for specific gold mining companies such as Gold Road Resources and mining companies Genesis Minerals and FireflyThe discussion around gaining copper exposure with Capstone and Metals Acquisition as important players in the sector

Paul Hissey from MA Financial shares what he'll be watching when reporting season rolls arond for gold and copper miners. He says while we have a pretty good idea about how companies are going operationally due to the raft of recent production reports, it will be important to watch out for asset impairments and forward looking guidance.

With the gold price trending higher gold miners will pull focus this reporting season. Paul gives his take on Gold Road Resources (ASX: GOR) and its challenges, highlighting the company's strong financial health and the potential for the company to benefit from higher gold prices. Turning the spotlight on Genesis Minerals (ASX: GMD), Paul notes the company's rapid growth despite its early stage, crediting this to the management's reputation.

One of Paul's picks in the copper space is Firefly (ASX: FFM), a very early-stage copper asset holder in Canada; he suggests the lack of expectations surrounding such newcomers might be an advantage. Paul talks about the challenges that investors have faced following the exit of Oz Minerals (ASX: OZL) from the registry in Australia. He identifies Capstone (ASX: CSC) and Metals Acquisition (ASX: MAC) as reasonably fresh copper investment propositions for Australian investors. With a keen eye on how these companies can shape up over the next year, he suggests there may be opportunities for them to take investors away from current favourite, Sandfire (ASX: SFR).

Full unedited transcript below:

0:00

Okay, so we are really gearing up for the thick of earnings season over the next couple of weeks, but we've already had a number of production updates coming from the miners. Of course, the backdrop to all of this is some pretty steep falls in certain prices of some commodities, though not others. So to help us make sense of it all, very warm. Welcome to Paul who's joining us from Ma financial. Paul, welcome to ACS. Thanks for joining us.

0:28

Hi, Nadine. Great to be here. It's difficult to talk sort of across the commodities spectrum right now, isn't it, because we've seen such a divergence in performance when it comes to some key commodities. So perhaps we could just start with gold. You know, gold has been looked upon so favorably by so many of our guests. What's your view?

0:48

Yeah, I think we would share that view. Although at our firm we do tend to focus more on the underlying equities in the commodity price, given the challenges that you can have in in predicting predicting where prices are going. But I think we share probably a consensus view across the street that that the gold price is likely to to trend higher over time. But really, what's going to matter the most in the near-term is, is the expectations around the around the Fed's actions and, and potential for rate cuts there and how soon that might be. And I think there's pretty strong correlation between that kind of macro news flow and movements in the price. Okay. So then that sort of sets us up for the conversation about company specifics, because yes, of course you're conscious of the macroeconomic environment, what that might mean for the price of gold, but especially in earnings season. I mean, it comes down to operations, doesn't it? It comes down to costs. Like if we can say what's going to be on your control F five list for gold miners upcoming. What is it? Sure. Well,

1:48

I guess you alluded to it in your opening remarks. We do get a lot of clues at quarterly reporting for the mining companies with, uh, with key operating, uh, operating volumes and cost metrics largely reported now, uh, four times a year with the with the quarterly confessional season. And so for us really, uh, results season is is somewhat I don't want to say it's a non-event, but but it certainly can be, uh, I guess assessing things after the fact. We know the cash balance. We know what the balance sheet is going to look like. Uh, we typically have the operating costs dialed in. Uh, there's a there's only a couple of factors which will really surprise us at, at results season. And that's typically asset impairments. Uh, and then forward looking guidance. And I think uh, there are still some gold producers yet to provide the look ahead on FY 25 outcomes. So that's something that will definitely be focused on to see whether or not, despite higher prices, uh, these producers can keep their operating cost base and their

2:48

capital plans in check. Interesting. Okay. Thanks for the shorthand for when these come across my desk. Can we talk company specific. So, for example, I was chatting with an analyst today saying the Gold Road Resources was the favored pick of the bunch. What's your view on g o r?

3:06

Yeah, we would share that view, albeit only somewhat recently, having upgraded our own rating on that stock just in the last couple of weeks. They've had a pretty tough time over the last 9 to 12 months, which started but with a lot of operating challenges late last year around availability of personnel and an actual yellow fleet, uh, to to undertake the mining in their pit at Gruyere. Uh, so that led to a poor end to last year. And the stock has been under pressure basically ever since, as I think as a result of that. Uh, and then coupled with, uh, wet weather, which is severely impacted that operation and several others in that part of the country, uh, through the first half, the reason for our recent upgrade is, I think, the the commentary from the company at the quarterly, which lowered the guidance for the the year ahead. So these guys have a calendar year end reporting period, feels to me like they've rebased the market's expectations somewhat, and I feel like they're much more achievable from from here on out. And look, the stock has been, uh, just been a terrible performer,

4:06

frankly, uh, since around November last year. You know, Gold Road is is trending down some 10 to 15% compared to most of its peers, up around about the same amount. And that's despite the gold price having rallied so hard since since late last year to where we are now. And so the underlying asset grew. Yeah, it's a fantastic asset. Our thesis is really that that the issues it's having a transitory uh, the company will get through them. However the market tends to, focus a lot on what's happening or what's just happened, and I think it can be sometimes difficult to look through and see and see better days ahead. So it's a GRI as a good asset. The company is in strong financial health. It's unhedged, so it should get the full benefit of this higher gold price we're currently seeing. And and I think it'll be one to watch over the next 12 months. Interesting. So also what you're saying is a little bit of value in there as well because the share price has been beaten down. So Genesis Minerals bigger company by market cap. I feel like we don't talk about it as much as we do the

5:05

likes of, you know, Gold Road and Romulus etc.. Why is that, Paul? Or maybe it's just me.

5:13

That's interesting because I feel like we've talked about Genesis a lot in the market over the last two years for a company that's still relatively immature insofar as its journey goes. Uh, the guys at Genesis provided, uh, I guess, a much vaunted five year strategic outlook back in March, uh, around how they were going to pull together a group of assets which, uh, which are only recently been aggregated. Uh, and at the time, the company already enjoyed, uh, upwards of a 1.6 or $7 billion market cap. Despite, you know, myself and my peers and investors having very little granularity around what the business was actually going to look like, I mean, there's no doubting this is a favorite stock for professional or institutional investors. I think that's got a lot to do with the the track record and the reputation of the management team at the at the helm there, obviously formerly from Saracen Minerals. And so there's a very strong following from a personnel or from a management perspective there. Nadine. And

6:13

I don't know if that means we talk about it too much or not enough. Um, but but maybe I think there's an element here, too, that the company is actually quite busy trying to consolidate the aggregation of all these properties. And so perhaps less a little bit less inclined to be, um, to be releasing news flow and, and out sort of pounding the pavement, um, extolling the virtues of, of the stock, like, like perhaps they might be if this was more of a steady state operation. Yeah, right. Well, um, the share price has done very well, so up by about 47% over the past year. You know, the question would be, you know, is there still upside there.

6:49

Yeah, I think so. We have a price tag at around 250 for this stock. And that's underpinned by a gold price which rises gently over the next few years and then rolls over to a long term price around $1,900 US. Uh, it's still early days in the in their journey, and this is a business that's going from a standing start to to 300 plus thousand ounces of gold production over the next 4 or 5 years. Uh, I think it's very much, uh, it's it's not a value play. This is a stock to me that that is going to capture, uh, investors, um, hearts and minds through momentum, uh, people, uh, because of the reputation the team have, I think there's a willingness to bake in baking the company's plans ahead of time, whereas we might see other stocks in our in our portfolio or in our coverage universe. Uh, the market really needs to see the performance before it's prepared to pay for it. Uh, with Genesis, I think it's the other way around. And so we're paying up for their delivery. Uh, but I do feel like this is a team that

7:48

that can deliver.

7:50

Yeah. Saracen, that's a throwback to the past, isn't it? Hearing that name again now. So you know you're willing to pay up on the prospect of something really good, but do you steer clear completely of sort of explorers or those in the development phase? As a rule of thumb, do you have any in that area that you, that you do like?

8:11

Yeah, I don't, I don't think uh, I don't think there's any blanket rules there. Uh, certainly there's been, uh, there's been explorers and emerging names over the, over the last year or two that have done well, uh, not the least of which in some of the, um, perhaps less less conventional commodities such as lithium and in the rare earth space, uh, one of the names we have in our universe, in the copper space is, is Firefly with an asset in Canada. This is very, very early stage, albeit the guys have discovered a an all body there or I should say have purchased an all body and an operation from administrators which which is open to be drilled. And so the Firefly, uh, guys are very aggressively drilling out that project. We may still be months away from, you know, from a meaningful initial economic assumption, uh, or assessment, I should say, of this, of this project. So it is very early days, but it is in the right commodity, uh, copper which, which we were quite, um, predisposed to and, and

9:11

I think it's very easy for these guys to, to deliver into expectations because there almost are no expectations if, if you know what I mean. They don't have to worry about, you know, financial output. They don't have to worry about meeting quarterly production guidance. Uh, it's very much a function of drilling out in your body and continuing to release drill results which which are positive to to drive the share price higher. Well, you've segue us nicely to copper. Obviously gold and copper often go hand in hand, but we are continually asked how to gain copper exposure. If you're not in, you know, BHP. If you're in some of the smaller miners, where is the most opportunity? Because a lot of people are also looking at the likes of Sapphire that have sort of already ridden the wave of of positive sentiment to copper and it being a tool in the electrification of everything type thing. So where where are you looking in terms of your coverage for ways to get exposure to copper now for investors? Yeah, it's a I mean, you've identified a really

10:11

important point and something that investors have been grappling with over the last 12 months or so with really with really with sorry following the disappearance of Oz minerals from our from our register here in Australia. It's been it's been sand fire or nothing. Uh, some smaller stocks in the, in the market have found that going pretty tough. And that can sometimes be a common story for base metal projects where whereby you really need to get the price cycles right, uh, to, to bring a project back to life and, and actually capitalize and, and generate enough free cash to help you ride through the next, the next downturn in the cycle. Um, more recently, however, we've had capstone, a large TSX listed stock, uh, arrive onto our local market here via a CDI, as well as Metals Acquisition, who acquired the Cobar mine from, uh, from, uh, Glencore. Glencore? Excuse me. Just, uh, both of those companies having arrived on the on the board here, uh, in in April and May. And so that's given investors, uh, who are

11:11

keen for a pure play copper exposure. Something more to think about. Uh, and very much, uh, comparable peer in terms of overall scale and output to, to sand fire. Uh, I think it'll be interesting to see the next 12 months play out. Whether or not both of those companies can, you know, can potentially, uh, attract some investors out of sand samphire, which very much still feels like the legacy investment proposition for a lot of local shareholders. Okay. So again, just to put you on the spot, shorthand for the copper producers, I know we've had production reports, but come reporting season when you consider it's such a hot area of the market, where do you want to look to justify I guess some of the price moves potentially on the day?

11:53

Yeah. I think again, we'll be looking for for forward commentary and, and some of these guys. It is a little bit, a little bit challenging with um with both Capstone and Meadows acquisition, uh, the latter being New York listed as well. So, so the disclosure and reporting obligations are a little bit, uh, out of the out of the ordinary for, for the local producers. Uh, we've had the capstone financials already for the second quarter. Uh, that was that was fine. So we won't hear from those guys again now until, uh, until October some time, I think for metals acquisition, I'll be keen to see how the how the balance sheet looks. Uh, that's one thing the guys have been working on there. Uh, while they're while they're continuing to establish, I guess, a new steady state following the change of ownership at Cobar. Uh, behind the scenes, we understand they've also been, uh, been working quite hard to potentially, uh, potentially renegotiate existing debt or in fact, set up new facilities to exchange out the current facilities they rely upon, which were which was set

12:52

or indeed agreed to, you know, some 12 months ago or more, when the company itself was arguably in a in a much less robust position. It is now so so for metals acquisition, we would be keen to see, see commentary around around how that balance sheet, um, improvement process is going.