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Momentum in the junior gold space continues to build

Momentum in the junior gold space continues to build
Money is now flowing into the gold mining sector

Christopher Hall, the chairman of Stratex International plc (LON:STI) made some interesting comments on the state of the mining equity markets on the release of the company’s six monthly results to June.

“Looking back at the first half of 2016 it would appear that the fortunes of smaller exploration and mining companies have at last bottomed,” he said. “The shares of juniors, including Stratex, have strengthened and equity funding has recommenced on improved terms.”

Stratex is a particular case in point because it’s involved both on the production side, at Altintepe in Turkey, and on the exploration side with various assets in West and East Africa.

Funding has come in for Stratex investee company Goldstone Resources (LON:GRL), which raised £1 mln in late July, and for Thani Stratex Resources, a privately-held joint venture, which raised over US$3 mln for exploration in Egypt and Djibouti.

And Christopher Hall is right to point out the gains: Stratex shares are up by around 70 per cent on their December lows.

Still, if Stratex is a useful home-grown case-study, it’s by no means the only one. Hummingbird Resources (LON:HUM) raised money again this week, adding US$3.7 mln to the US$71 mln it raised in June and brining on board a blue chip investors in the shape of Fidelity in the process.

Meanwhile, over in Canada, Klondex Mines (TSE:KDX) is raising C$114 mln through a bought deal to fund the acquisition of the Hollister mine and associated assets in Nevada.

Once-upon-a-time this mine was owned by Great Basin Gold, a company that collapsed in on itself when the gold price peaked and then started to fall in 2011. But Klondex sees a viable opportunity here, and its backers clearly do too – the bought deal was originally set at just C$100 mln but was heavily oversubscribed.

Over in Russia, the action is hotting up too, as Petropavlovsk (LON:POG), once thought by many to be so weighed down by debt as likely to implode, is now on the move as what chairman Peter Hambro describes as “the Russian consolidator of choice.”

Petropavlovsk is already producing upwards of 400,000 ounces per year and is expanding its resources still further through a series of joint venture deals and acquisitions.

Meanwhile, the company that’s perhaps least leveraged to the higher gold price, but that’s widely recognised as one of the safest havens in the industry, Randgold (LON:RRS) has been moved onto a “sell” rating by some analysts who think that at 8,575p the shares have been bid up high enough and that there’s better leverage on offer elsewhere.

It’s a cruel world.

What’s clear though, is that August or not, the mining equity markets are very much alive. Investors remain cautious and selective, as they should, and outside of gold, the picture is less rosy.

But pictorial commentary from RFC Ambrian sums up the tipping point that we now appear to be reaching. Ambrian attached to its morning note of Friday 12 August a cartoon of a man on a quayside watching a steamship disappear over the horizon. The caption was: “don’t miss the boat.”

And in the accompanying commentary Ambrian rammed the message home.

“The equity markets are beginning to invest heavily in mining projects,” wrote the broker.

“This is being led by gold, which is only to be expected. Capital raisings in the space are now an almost daily occurrence, and it is the institutions in North America that have led the way. London has been slow to raise weightings in the mining space, and it has a fair amount of catching up to do.”

Of course, London is still slightly reeling from the Brexit vote earlier this summer, but if mining starts to show decent returns, it’s unlikely that London capital will miss the boat. And in turn, if the Ambrian analysis is correct, when London does pile in, the momentum will only increase.

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