Argonaut Algorithm: Time coming to revisit gold juniors

Argonaut Funds Management’s David Franklyn joins Stockhead to share investing secrets from the high-conviction resource sector investing fund, including his junior stock pick(s) of the month.

Like an anxious concert-goer pulled unwillingly into the mosh, gold has been ragdolled by rising bond yields in recent months.

The surge in US Treasury yields has come off the back of rate hikes and inflation caused by the Iran War, a roadblock which sent gold prices hurtling back from record highs.

From Donald Trump’s second election win in November 2024 to January 2026, bullion surged by more than 110%, eventually eclipsing US$5300/oz – and even higher, depending on which price you rely on.

At its post-war ebb, prices declined as much as 26% from their highs to around US$3950/oz in mid-July.

Now they’re consolidating around US$4100/oz. At the same time, 10-year US yields have risen from 3.9% to as high as 5.36%.

But Argonaut Funds Management’s David Franklyn believes the worst could be over for gold stocks. And the time could be arriving to return to early stage plays.

“I think the positive for gold and ultimately gold equities is, we believe, that US treasuries are probably approaching a peak,” he said.

“There may be one or two further increases but we think we’re near to the top and therefore I think that’s a good sign for gold equities.”

Fundamentals supporting gold

Gold is relatively unique in that it does not operate in a conventional supply-demand dynamic the way industrial minerals do.

Rather, the key variable in gold prices is how attractive it is as an alternative to other forms of currency or safe haven investments.

Franklyn said demand was elevated by geopolitical conflict, high US debt levels and the risk of de-dollarisation, as countries look to diversify from the US dollar in an increasingly multipolar world.

“You’ve got the US’ role in the global landscape changing meaning that less people want to hold US-denominated assets and they’re more comfortable with something like gold as a store of value,” Franklyn said.

“US debt levels continue to escalate. That increases the risk of currency debasement in the US which also supports gold.

“And I think that that trend – a lack of fiscal restraint – is playing out across many global economies, which is not good for currencies, but is good for gold. So I think that the setting is good for gold to continue to perform well in the medium term.”

When the gold market was falling, Franklyn said Argonaut’s thesis was to back high-quality producers with strong balance sheets.

That led core positions in its Natural Resources and Gold funds to feature strongly high-margin, mid-tier gold miners, notably Ramelius Resources (ASX:RMS), Genesis Minerals (ASX:GMD), Capricorn Metals (ASX:CMM) and Greatland Resources (ASX:GGP).

But Franklyn said the window of opportunity could be opening to invest at the junior end of the gold market.

“We think that from that macro perspective, interest rates are getting towards their peak. So I don’t think there’s far to go in that interest rate hiking process,” he said.

“The implication of a tougher gold market is that value has returned to the sector. A lot of stocks are well off their highs.

“And so we think that it’s time to look down the market cap list and just target some of the earlier-stage explorers and developers that look compelling value.”

Argonaut’s stock pick(s) of the month

There are three juniors on Franklyn’s radar this month, starting with the WA Goldfields explorer Sinclair Gold (ASX:SGC).

It owns the Mt Henry gold project near Norseman, formerly held by Westgold Resources (ASX:WGX).

“Market cap $190 mil, cash of $40 mil. It’s actually only 5km south of Pantoro’s (Norseman) operations, so pretty close there,” he said.

“Westgold remains a 20% shareholder and they’ve been busy, they’ve increased their gold resource from basically 950,000oz to 1.8Moz at a grade of 1.2g/t and there’s ongoing drilling.

“We think that it’s shaping up as a mid-scale producer, producing somewhere between say 120-150,000 ounces but still work to be done.

“We think it’s interesting from a number of points. One is the market cap is not demanding, they’ve got plenty of cash and the prospect of something corporately potentially with Pantoro (ASX:PNR) can’t be ruled out.”

The next is Skylark Minerals (ASX:SKM), which this week boosted its resource at the Zaranou gold project in Côte d’Ivoire by 228% to 1.2Moz at 1.2g/t.

“Skylark is one that’s really been under the radar for some time.

“It’s got a project in Côte d’Ivoire, the executive chair is Nikolai Zelenski, who really helped grow the Nordgold business into a one million ounce per annum global producer.

“That’s now shaping up as an emerging West African project. Its market cap’s only $30 mil, it’s got $5m in cash, it looks cheap relative to its West African peer group.”

The last is TSX-listed San Lorenzo Gold, which is searching for copper and gold porphyry discoveries near Codelco’s El Salvador mine in Chile.

“It’s got a market cap of C$618 mil, cash of C$23 mil, but they just during the week raised a further $80 million dollars Canadian through a private placement and I think that really reflects the progress this project is making,” Franklyn said.

“It’s got the Salvador project in Chile, which we think has the potential to be an over-five-million-ounce gold project. They’re continuing to drill it out and it’s well located in Chile, a lot of infrastructure nearby and looks to be an emerging tier-1 asset.”

Argonaut Funds Management is a high-conviction resource sector investor managing the Argonaut Natural Resources Fund and the Argonaut Global Gold Fund. David Franklyn is the Fund Manager for the Argonaut Natural Resources Fund.

The views, information, or opinions expressed in this article are solely those of the interviewee and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

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