Investors seeking to capitalise on a bullish gold market in 2020, and in particular the next raft of discoveries, will no doubt be aware of the impact that the easing in monetary policy by the Peoples Bank of China (PBOC) has had across markets in China, still reeling from the CoronaVirus.
With the yellow metal long viewed as the definitive safe haven investment, markets have also seen a surge in interest at the more speculative end of the gold spectrum, most specifically across junior gold explorers. AIM listed ECR Minerals (AIM: ECR) is one such company currently in focus.
Creswick Potentially Transformational for ECR
Prior to the recent surge in the gold price, ECR had already seen a transformational 2019 in regard to developments across it’s six flagship projects.The final quarter saw developments across the explorer’s key Creswick project in Victoria, Australia, with ‘nuggety gold mineralisation’ confirmed in the Dimocks Main Shale (DMS) prospect at Creswick, some of which proved to be exceptionally high grade.
Creswick is viewed as a potentially transformational project for the company, particularly given that the highest grade duplicate result of 80.97 g/t gold came from a 1 metre interval that originally assayed 44.63 g/t, confirming the original findings announced on 8 May 2019.
On February 20th, ECR announced it had appointed Dr Dennis Arne to carry out a lithogeochemical study of cuttings (chips) generated by reverse circulation (RC) drilling at Creswick in 2019. Dr Arne is a preeminent consulting geochemist in Victoria, whose experience includes extensive consultancy at the highly successful Fosterville gold mine in Central Victoria owned by Kirkland Lake Gold. Bringing someone of this calibre in to review the drilling samples is a solid endorsement of Creswick’s potential, and has set tongues wagging amongst the investing cognoscenti across social media channels. In typical understated fashion, ECR said the results of the study “are anticipated to be valuable for the purposes of future exploration at the Creswick.”
Elsewhere in Central Victoria
Activity continues across ECR’s other projects in Central Victoria, with a number of potential exploration programmes for the Bailieston project, (including further drilling at the Blue Moon prospect), are under consideration, along with soil and stream sediment sampling in the Cherry Tree South and Ponting’s areas.
ECR Interests Realigned
With six key projects across Australia, a country estimated to have the largest gold reserves globally, ECR’s CEO Craig Brown and the board have taken the decision to realign the group’s many interests to focus on Victoria Gold Projects, (Creswick, Bailieston, Avoca, Timor & Moormbool) and the Western Australia Windidda Project.
In this regard, on February 5th the group announced the sale of the SLM Gold Project in Argentina to Hanaq Argentina SA, a Chinese-owned company engaged in lithium, base and precious metals exploration.
The move sees ECR retain an NSR (Net Smelter) royalty of up to 2% to a maximum of US$2.7 million in respect of future production from the SLM gold project. Craig Brown stated that he was.. pleased to retain exposure to potential upside from the SLM gold project in the form of a royalty on future production..we believe that Hanaq has the operational capabilities and access to Chinese investment capital necessary to put the SLM project into production. And more importantly, it aligns the group’s operational activities exclusively across the six key Australian projects.
While activities across the Victoria projects are well documented, (not least because of the the Bailieston project is adjacent to a prospect territory acquired in 2018 by global mining giant Newmont), ECR has been pushing ahead its Windidda Gold Project based in the Yilgarn region of Western Australia. This consists of a package of nine exploration licence applications covering a 1,600 square kilometre area with the potential to host orogenic gold deposits. At the end of January ECR published an update on Windidda, stating that four exploration licences had been granted in the north-eastern Yilgarn, and announced a further license award on February 20th.
Aside from Gold, the region is also highly prospective for nickel-copper-PGE (platinum group element) mineralisation, so consequently ECR has commissioned a consultant to complete additional geophysical modelling and a review of historical activity reports for areas to the south of Windidda to better understand the potential prospectivity of the project.
The sale of the SLM Gold project has certainly saved ECR from the ongoing costs associated with acquiring and running an exploration license. There was further good news on the funding front too, as the group also received a cash refund for research and development (R&D) expenditure of AU$555,212 (approx GB£295,515), added to which for the year to 30 September 2019, the group carried forward corporate income tax losses of AU$ 66,341,587 (approximately GB£35.3 million) which are expected to be available for offset against future taxable gains.
Despite this, the current market capitalisation of GB£3.6 million reflects little more than the value of the administrative work undertaken to secure the licenses, with no premium whatsoever for the results from Creswick or any of the other work undertaken to ascertain the prospectivity and value of ECR’s projects.
While it seems trite to discuss investment opportunities in the midst of the shock, havoc and terrible human cost wrought on China and the world by CoronaVirus, the event has already significantly impacted on many of the larger resource and energy groups who provide raw materials to satisfy China’s enormous burgeoning economy.
As already highlighted, the impact on the China stock market (and global markets) has to some degree been mitigated by quantitative easing measures by the PBOC, but the consequential weakness in resource and energy stocks has inevitably driven investors to seek returns elsewhere, i.e. gold. So on February 20th, Beijing cut the one-year loan prime rate to 4.05% from 4.15%, prompting China’s banks to further lower the benchmark borrowing costs for new corporate and household loans.
On the subject of rate cuts and easing, Neils Christensen, a journalist at leading bullion website Kitco stated on February 17th that analysts “remain optimistic that (gold) prices can push higher as easing from the People’s Bank of China could ignite a further drop in global interest rates.”
This view is backed by other pundits too. Ole Hansen, head of commodity strategy at Saxo Bank, said that economists are still trying to estimate the full impact the spreading virus will have on the global economy. He added that this uncertainty will continue to support gold prices. “We have seen monumental demand destruction this past month and that won’t be resolved anytime soon,” he said. “Central banks will be forced to ease again, but the question is just how much impact further easing will have.”
As China and the world struggles to get to grips with limiting the spread of CoronaVirus, the strength in the gold price looks likely to be sustained throughout the year. This strength is likely to be reflected in across junior gold mining explorers with strong project portfolios. With the raft of project developments and drilling updates scheduled for early 2020, ECR is likely to benefit from this continued focus.
by Alan Green