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Goldstone Celebrates First Gold Pour With 6% Rise, What Now?

Tim Worstall
Tim Worstall trader
Updated 30 Nov 2021

Goldstone Resources (LON: GRL) is an AIM-listed stock revamping old gold mines in West Africa. The celebration in the share price today comes on the back of their announcement that they have just completed their first gold pour at the Homasi Mine. The rise on the day has varied between 13% and 6%.

This might seem a little extreme as a reaction to the production of just the one bar of gold – they’ve produced a little over 14kg, which is about one bar of good delivery London material. However, it’s also an excellent indicator for the company as a whole for it shows that Goldstone is in fact hitting the necessary milestones.

The Ashanti area – where the Homasi Mine is situated – has been exploited for gold for centuries now. There are written records from the 1400s and access to the supply was a major reason for early African exploration by Europeans. We might then think that the area is mined out but that’s not how gold exploration does tend to work.

Extraction technology moves on and the first thing to be done with each advance is to go back to the old mines – exhausted perhaps using the old technologies – and see whether the new ability to produce can reopen those mines. This process has been going on with many metals for a long time too but it’s most noticeable in the gold business. Re-refine the old waste piles, re-open the old mines, using the new technology has been a viable business for centuries.

So the base idea is nothing new but as with all businesses, it’s the ability to execute that matters. That Goldstone has raised a million in new capital earlier this month, poured their first gold from that old mine, these are good signs for the future.

A further background to this is that gold shares are hugely leveraged to the gold price. Costs don’t change when the metal price does, but revenues do, therefore an increase in gold feeds straight through to the bottom line. Increases in profit are capitalised into the share price – that’s the leverage. Gold shares, therefore, rise more than the gold price – and fall more too.

In an environment where many are starting to worry that the inflation isn’t temporary, isn’t transient, we might think the gold price will take off and that a miner just on the cusp of really producing in volume is an interesting tale.

For traders though this is also a slightly cautionary tale. The news is good, the share price jumps, but then falls back again – it was 13% up, then only 6%. This just emphasises how absolutely vital timing is in any trade. Speculative positions cannot be put on and just allowed to run, they must be monitored for changes in market sentiment. The right position in the right direction today could have made good money. The thing is, which direction the right position was has already inverted just since this morning. Active trading does mean, well, trading actively.

Should you invest in Goldstone Resources shares?

Goldstone Resources shares are traded on the London stock exchange's AIM market (the alternative investment market), which is the submarket specifically for smaller companies. AIM stocks are attractive to investors as they have tax advantages and smaller companies have the potential to benefit from rapid growth. But are Goldstone Resources shares the best buy? Our stock market analysts regularly review the market and share their picks for high growth companies

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.