Gold prices have risen by 10% in AUD terms and 7% in USD terms in FY18YTD. Funds flow has been predominantly into mid-tier producers with the ASX Gold Index (XGD) up +17% FY18YTD. Emerging plays have fared well, evident from the surge of the ASX Small Resources (XSR) index which has risen by 48% FY18 YTD. Equity valuations of the mid-tier producers now look stretched and we struggle to identify significant value upside. We speculate this is due to increased North American investment in the ASX Golds versus the US gold producers which have largely underperformed in FY18. Emerging developers have recorded only incremental gains and we argue that in the near-term, investors will look come down the curve into the emerging developer space for value. Our key picks include Dacian Gold (DCN), Gascoyne Resources (GCY) and Gold Road (GOR). We now also identify the next tier of potential development plays including Explaurum (EXU) and Genesis Minerals (GMD) with advanced studies looking to make the transition into production.
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