Gold’s initial buy-the-fact rally in response to the first of the three expected US interest rate rises this year was welcome stuff for the ASX gold sector, which has been showing signs of buying support fatigue.
Consolidating above the $US1200 an ounce level when the price seemed to have legs eleven written all over it also means that the great crush of new floats and other forms of deal-making can get moving again, for the time being at least.
That’s the generic overview of where the ASX gold space is right now. But as always, a deeper dive in to the sector can sometimes serve up a stock that is viewed to be on the edge of a break-out regardless of the daily gyrations of the gold price.
And it can be said that is certainly the read of some savvy market watchers on Echo Resources, the stock with the cute ASX code of EAR. It last traded at 19c for a market cap of $69 million on the strength of its near-term ability to become a gold producer from Western Australia’s Yandal greenstone belt.
Chris Bain at BW Equities has a 6-9 month price target on the stock of 32c, with the timeframe reflecting expectations that a drilling program underway will deliver up the ounces to underpin the restart of the currently-idle Bronzewing processing plant.
Echo is already part of the way to a restart. It’s part way because a recent feasibility study on the Julius deposit (68,000 ounces in reserves) found it could return $41m in earnings over 15 months of production.
But given the size of the Bronzewing plant, Echo would be best served to have at least three or four years of reserves ahead of it while turning early cashflow to exploring its extensive tenements to push mine life out further still.
That’s what the current drilling program is all about, with the conversion of resources to reserves at the Orelia deposit first cab off the rank. Results can’t be too far off now and the betting is that as the restart of Bronzewing (the cost of a mill refurbishment is far from challenging at $12.5m) gets closer, that valuation gap BW Equities alludes to will close. Read More.
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