(Kitco News) – High gold prices are helping the valuations of the majors, and the best thing the juniors can do in an accelerating M&A environment is focus on advancing their own assets, according to Jean-Felix Lepage, VP Projects at O3 Mining.
Lepage sat down with Kitco Mining at Xplor 2024 in Montreal. He said the impact of the gold price rally will begin to show up on miners’ reserve statements and valuations in 2025.
“Mining companies use the gold price in the policies for reserve statements,” he said. “That's the price they used to calculate the cutoff grade and then the resource, and most of the majors published their reserve at the end of the year.”
Lepage said that these calculations are now set to play catch-up with the real price of gold. “If you look end of 2023, the majors were around $1,400,” he said. “That was what they used in the reserve. And if you look back, they've been doing increments of $100 gold per year, but really cautiously over the years. And if we look back, the gold price was between $1,800 and $2,000 for almost three years. So we can assume that $1,800 to $2,000 means $1,400 for reserve.”
The other key area where miners apply the gold price is for financial evaluation and company valuation. “What you put in your model as a revenue input, that tends to be a little bit higher,” Lepage said. “In the same period, while you see the reserve at $1,300, $1,400, it was more on the $1,500, $1,600, $1,700, depending on the company. And that's more reactive because it's more a short-term thing, versus the reserve, that is more a long-term perspective.”
“This year, we've seen majors going out with studies at $1,900, so I expect that gap of $400 or $500 on the reserve will flow slowly next year,” he said. “As the reserve will go from $1,400 to $1,600 and $1,700, that will open new areas for miners.”
“But that will also change their view of the other projects of the miners, or just the juniors projects that they have in their area as well,” he added.
O3 is now positioning itself to take advantage of the heightened M&A activity in the market while continuing to move toward technical and permitting milestones.
“Even if we were not looking to sell, it will bring tension in the market, and I think that will help all of the junior stocks to go up as well,” he said. “We have the gold price itself, we have the tension about M&A, and also we have to deliver on de-risking our own projects.”
“There's two ways we can raise the value of our company,” he said. “First is to drill and have results. The second one is to derisk our advanced projects. For us, it's technical studies, but it's also doing the permitting, and we’re advancing quite fast on the permitting as well.”
“Once we get there and you’re permitted with the technical studies completed, then you're ready to build, and to cash in on that high gold price.”
Coverage of Xplor 2024 was sponsored by Radisson Mining Resources.
Subscribe on Apple Podcasts, Amazon Music and Spotify. You can also add the RSS link to your favorite podcast player: LINK
