While the atmosphere wasn’t as morose as he expected, Erfle said gold juniors continue to face challenges. Of course, as he reminded investors, it’s easier to pick winners during tough times than in bull markets.
‘Let’s face it — the great projects are always going to get financed, they’re always going to get built. And many of them are controlled by these juniors,’ he said. ‘In bear markets you can always tell the strong companies from the bad companies — you can always tell the wheat from the chaff, they stand out. But in bull markets it’s much more difficult.’
During this time of negative sentiment, Erfle wants to see more M&A activity, especially among single-asset developers. He explained that some of these companies have done a good job de-risking multimillion-ounce deposits in safe jurisdictions, but are stuck when it comes to funding their feasibility studies or construction activities.
‘What I’d like to see is several of these companies merge, so you have one company with a handful of these projects — maybe $150 million, $200 million in the bank, access to capital and also tack on a big board US listing. Then you’re more liquid, you’re more attractive, because there’s only so many checks these financiers can write,’ he said.
In Erfle’s opinion, the big reason gold stocks are struggling is that the gold price has ‘gone nowhere’ for three years.
‘It ran up to resistance at US$2,000 (per ounce) in 2020. That was where it almost ran up to in 2011 — it came US$75 from resistance in 2011. It ran up there again in 2020, and it’s tried to break out two other times. And after each failed breakout investors get more and more discouraged,’ he explained. ‘So with the gold price going sideways and inflation going up so much, the all-in cost of production has gone up — the price to explore, the price to build a mine, everything. All those costs have gone up, yet the gold price has gone nowhere, and stock market continues to go higher as well.’
That said, he sees various signs that a bottom is setting in for the gold sector and pointed to opportunities to pick up stocks. ‘Herein lies the opportunity, and this is why I love bear markets in this sector,’ said Erfle.
Watch the interview above for more of his thoughts on the gold market and juniors.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.