TORONTO, June 26, 2019 /CNW/ - Orefinders Resources
Inc. ("Orefinders" or the "Company") (TSX.V: ORX) is pleased
to provide its updated investment thesis, originally published in
September 2018, to include its view
on the recent gold price movements, how this impacts the major
miners, the gold juniors and how this fits into Orefinders
strategy.
WHAT HAVE WE SEEN THESE LAST 30 DAYS?
Gold price movements in June 2019
look promising as we have exceeded the $1,400 level. This key psychological threshold
needs to hold and mature for confidence to be restored from
generalist capital so that it flows back into the sector. Should
$1,400 hold, it could mark the
beginning of a rebirth for gold juniors which Orefinders' strategy
has been specifically planned for: to acquire in the downturn
and develop in a bull market.
Thus far the gold majors have seen an increase in share price
correlating with gold price. The gold price was $1,280/oz 30 days prior to reaching $1,400/oz. This 10% increase in gold price
corresponds to a 25% share price increase over the same time period
for well known gold equities including Barrick, Kirkland Lake Gold and the GDX. The correlation
is evident, but also note the leverage to gold price being 2.5:1.
The narrative for investing in gold equities is to get levered
exposure to gold price, which has held true this past month.
Gains within the juniors have been comparatively muted, but this
is expected as the they will lag gold's movements as a higher gold
price does not directly impact a junior's bottom line. Furthermore,
greater sector confidence is required for capital to travel up the
risk curve.
WHAT COULD HAPPEN NEXT?
Initially, generalist capital seeks returns in the perceived
lowest risk segment of gold – the majors. As these investors gain
confidence and realize returns in gold, the upside to the majors
will rationalize and investors will increase their risk appetite
and pivot towards the mid-tiers. The process will be repeated until
risk capital flows back into the industry and provides attention to
the junior explorers and developers.
While perceived low-risk companies like Barrick and Kirkland Lake Gold have seen a 2.5:1
increase to gold price, the juniors, who've lost 90% of their value
since 2012, are poised to deliver many multiples which the majors
have thus far provided. Should this $1,400/oz gold price be sustained, there appears
to be an opportunity get ahead of the curve by evaluating gold
equities which correlate but lag gold price movement.
MERGERS AND ACQUISITIONS UPDATE
MAJORS
Since 2013, institutional investors have demanded rightsized
operations, delevered balance sheets and lower costs. In a
depletion business such as mining, these themes can only be
temporary.
Over the past year, Orefinders has met with a series of large
mining companies who are all thinking about their five year plan to
replenish depleted reserves. Securing future gold supply will again
be thematic, with M&A at the forefront and exploration soon
after.
MID-TIERS
This segment is facing intense pressure to merge amongst
themselves, with the narrative from institutional investors being
that a $2 billion company is no
longer practical or competitive. The Barrick-Randgold and
Newmont-Goldcorp mergers set the tone that bigger is once again
better. The mid-tiers, who compete with the majors for capital from
the same pool of investors, will need to follow suit.
M&A is no longer just about operational synergies. The
objective is to become the big name in gold in order to
access the lowest cost of capital to fund operations and
acquisitions.
GOLD JUNIORS
Gold juniors have been neglected to the point where they have
lost 90% of their value.
However, should the gold price hold or exceed the $1,400/oz level, in time, all boats are likely to
rise. But the cream of the crop will dramatically outperform the
average. If we apply Pareto's 80-20 Principle, 80% of junior gold
companies are little more than long-term liabilities, while 20% are
good companies with interesting assets run by quality management.
If we apply anther 80-20 deviation to the 20% of good companies, we
can approximate that 4% of juniors will deliver mines or trade
sales within a reasonable investment horizon. The remaining 96% may
offer phenomenal trades in the near term but carry longer term
risks.
We forecast that should gold price hold at the $1,400/oz level for a few months, on the balance,
junior gold explorers and developers are set to outperform. While
high quality juniors could offer remarkable returns.
Furthermore, if there is validity in the thesis of a lag between
gold price and various categories of gold equities, we encourage
you to read Orefinders' investment thesis titled "Why Invest in
Orefinders?". This is reproduced in the link below but originally
published in September 2018.
Orefinders strategy was built on being cognizant of the gold
cycle, the Company's cost of capital and the return on investment
to its shareholders. Orefinders has taken a different approach from
typical gold juniors in preparation for an uptick in the gold
market, which as of June 2019,
appears to be underway with many of the themes in Orefinders'
investment thesis having now been realized.
Read Orefinders full investment thesis 'Why
Invest in Orefinders?' originally published in September 2018
About Orefinders Resources Inc.
Orefinders is a Gold exploration and development company focused
exclusively in Kirkland Lake,
Ontario within the Abitibi Greenstone Belt. The Company is
listed on the Toronto Venture Exchange under the symbol ORX.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in
the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this
release. Certain information in this press release may contain
forward-looking statements. This information is based on current
expectations that are subject to significant risks and
uncertainties that are difficult to predict. Actual results might
differ materially from results suggested in any forward-looking
statements. Orefinders' assumes no obligation to update the
forward-looking statements, or to update the reasons why actual
results could differ from those reflected in the forward
looking-statements unless and until required by securities laws
applicable to Orefinders. Additional information identifying risks
and uncertainties is contained in filings by Orefinders with
Canadian securities regulators, which filings are available under
Orefinders' profile at www.sedar.com.
SOURCE Orefinders Resources Inc.