Gold minnows do well as Newcrest suffers

Gold bugs face a choice: get in on the ground floor with the up-and-comers, or via downtrodden sector leader Newcrest.

Newcrest Mining (NCM) $22.88

Gold bugs face a divergent choice on exposure to the lustrous listed sector: get in on the ground floor with the up-and-comers, or at the other extreme via downtrodden sector leader Newcrest.

There’s little love for Newcrest after Monday’s quarterly update, with fourth-quarter output tumbling 6 per cent to 598,000 ounces. Still, Newcrest should churn out about 2.5 million ounces this year at an average all-in cost of $US800 an ounce, well ahead of nearest rival Evolution Mining.

Like Woolworths, Newcrest is a troubled sector leader in rehabilitation. Unusually for a $18 billion market cap stock, Newcrest attracts no better than a “hold” call from the brokers, with UBS valuing the stock at only half its current worth.

That’s in a sector experiencing the best conditions in decades, given the record Australian-dollar gold price and the plunging input costs.

Meanwhile, it’s a case of “gold gold gold” for the minnows as they tap a receptive market for funds.

Take Ramelius Resources (RMS, 55c), which has executed a $25m placement with insto investors to fast-track its Mount Magnet project and expand exploration.

This will enable Ramelius to “potentially” increase output to 150,000 ounces in 2017-18, from 110,839 ounces last year.

S2 Resources (S2R, 49.5c) has raised $9.1m in a “heavily oversubscribed’’ placement, with a further $3m earmarked in a share purchase plan.

S2 cites interest in its recent exploration success at its hot Polar Bear prospect in WA.

S2 was spun out of nickel star Sirius Resources after Sirius last year merged with diversified miner Independence Group.

No doubt pub talk about other golden prospects will abound at next week’s Diggers & Dealers’ confab. Until then, Ramelius and S2 are spec buys and we’ll avoid Newcrest despite the lure of a return to dividends.

Opthea (OPT) 58c

In the mists of time, the back-of-the-eye disorders house was known as Circadian Technologies and in 2012 (the last time we checked it out), the oldest ASX-listed biotech was spruiking a cancer diagnosis.

To cut an long story short, Circadian morphed into Opthea, which has focused on treating “wet” macular degeneration (AMD), a leading cause of age-related loss of eyesight.

The affliction stems from the eyes producing more blood vessels than required, resulting in fluid leakage.

Lucentis, a big-selling drug, tackles the condition. According to Opthea CEO Megan Baldwin, it’s only effective for about 40 per cent of patients because it tackles only one of several brain signals that spur the obstructive growth.

Opthea shares yesterday romped 10 per cent after an early (phase one) study — essentially a safety test — showed efficacy benefits as well.

Combined with Lucentis, OPT-302 was used on 20 patients via three injections into the eye. Of these, 16 had improved “visual acuity” while three more didn’t get any worse.

As a sign of the potential market, the big pharma-owned Lucentis and Eylea generate $US7bn of annual revenue. But the cancer drug Avastin, used as a cheaper off-label treatment, accounts for even more than that.

Opthea’s next step is a so-called 2A expansion trial, but the real driver is a 200-patient 2B trial, which would include a control group treated only with Lucentis.

Baldwin says the company should be able to fund these efforts from its own coffers. Beyond that, a full-blown phase-three trial would need a deep-pocketed partner.

Opthea has a positive role model in pSivida (PVA, $4.50), which won big pharma backing for its non-injected treatment for diabetic macular degeneration. Spec buy.

Yowie Group (YOW) 70c

In a further boost for ageing but revived children’s characters, Yowie is penetrating the tough US confectionary market with its rota of mythical Australian bush characters such as Boof the Bottlebrush and Rumble the Redgum.

And all without a reality games app in sight.

Yowie this week reported June quarter sales of $3m, five times greater than the levels of a year ago. The period also followed Easter, when consumers should have overdosed on cocoa beans.

Yowie sells through the omnipresent Walmart, as well as other retail names.

Annual sales have stiffened to $US12.4m, but with a quarterly outflow of $US1.63m, Yowie still looks well shy of profitability.

In the 1990s Yowies sold like hot cakes here, before a legal stoush with Canberra naturalist Tim the Yowie Man dulled then owner Cadbury’s zeal.

The toys (invented by admen Bryce Courtenay and Geoff Pike) became a collectable craze, prompting a Bring Back the Yowie page on Facebook.

Yowie’s re-emergence is a victory for the slacktivists, as well as subscribers in the 2012 float at 20c apiece. With a $180m valuation, this one looks a chunky bite. Sell.

The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author does not own any of the shares mentioned.