Gold Producers Trading 20–60% Below Recent Highs Creates Rare Entry Points

• Olive Resource Capital has conducted a deliberate portfolio spring clean, rotating capital toward higher-quality, more liquid gold producers after valuations across junior and mid-tier names fell 20–60% from recent highs driven largely by forced institutional deleveraging rather than deteriorating fundamentals.
• 2 companies highlighted (Northern Star & Goldsky) are identified as a best-in-class entry opportunity following temporary operational setbacks and share price weakness, and with high-conviction position being added to on price weakness for the former and unusual trading behaviour stemming from the mechanics of completing its acquisition for the latter.
• Balance sheet strength is the firm's primary screening criterion in the current environment, as deteriorating financing conditions mean cash-poor companies face a choice between slowing work programmes or raising capital on materially worse terms, while cashed-up operators can continue executing without dilution.
• Rising energy costs which represents ~30% of total costs for open-pit operators are expected to compress mining margins in Q2 2026, potentially delivering a double squeeze alongside a lower average gold price, though the sector remains highly profitable and M&A conditions are described as increasingly favourable.

Geopolitical uncertainty, commodity price swings, and a broad risk-off rotation in equity markets have prompted Olive Resource Capital to undertake a deliberate review and repositioning of its portfolio. Speaking on a recent recording of their investment podcast, Samuel Pelaez, President, CEO, and CIO, and Derek McPherson, Executive Chairman, outlined the firm's thinking, flagged specific opportunities they are acting on, and shared their views on what the current environment means for mining company fundamentals, M&A activity, and the long-term structure of global energy supply chains.

The discussion was grounded in the practical reality facing resource investors: a market that has moved sharply, created genuine entry points in quality names, but also introduced new risks that require a disciplined, balance-sheet-focused approach to navigation.

The Market Backdrop: Risk-Off but Selectively Opportunistic

Markets have been under pressure, with mining stocks among the hardest hit. Pelaez and McPherson describe the sell-off as driven in part by forced deleveraging where risk managers at leveraged funds requiring portfolio reduction rather than purely by deteriorating fundamentals. Mining stocks, sitting at the higher-risk end of most institutional portfolios, were among the first assets liquidated.

That dynamic, while painful in the short term, has created what the pair describe as a meaningful repricing opportunity, particularly in companies whose underlying asset quality has not changed. Valuations across many junior and mid-tier gold names are down 20-60% from recent highs, opening entry points that in some cases have not been this attractive for over a decade.

McPherson is clear, however, that selectivity matters.

"You don't have to buy. You could if your favorite junior is a little illiquid, but there is torque on the rally or the rebound from this. You don't have to buy illiquid stuff to get that."

The firm's response has been to move up the market capitalisation and liquidity spectrum, targeting companies they know well, with strong balance sheets and management teams capable of navigating a protracted period of uncertainty.

Best-in-Class at a Rare Entry Point

The most prominent name discussed is Northern Star Resources (ASX:NST), the operator of the Australia's largest gold mine Super Pit, as well as what was until recently considered the largest gold development project in Australia. According to Pelaez and McPherson Northern Star has delivered consistently against guidance for most of that period. A series of operational hiccups over the past six months, however, has weighed on the share price. Compounded by the broader gold price weakness, the stock has fallen well off its highs. It is precisely this combination of company-specific bad news delivered into a weak market creates what could be viewed as an entry point.

Pelaez draws a direct historical parallel.

"If you compare the performance of Northern Star the last two or three years to the rest of the market, they've been a laggard, not necessarily because of the issues that they had, it's just a company that typically has no leverage and flat margins. It's not the type of company that gets re-rated multiple-wise in a bull market. But now, in the ratio of all the other opportunities that we see, we think the window to get into the stock hasn't been better since the start of the company 15 years ago."

The operational setbacks are characterised as temporary rather than structural. The firm's view is that Northern Star will recoup lost ground, and that patience through any near-term earnings softness will be rewarded. The trade is framed explicitly as a longer-term position, with the possibility of adding to the holding if the next quarterly result disappoints.

Consolidation Creating Unusual Trading Dynamics

Goldsky (TSXV:GSKR) which is in the process of acquiring 100% of the Barsele project is also highlighted and is consolidating a joint venture into a wholly owned asset. McPherson notes that the stock is trading in what he describes as an unusual manner relative to its fundamental position, which he attributes in part to the mechanics of completing the transaction. That unusual trading behaviour, layered on top of general market weakness, is creating an additional buying opportunity.

Goldsky is not a micro-cap illiquid name, it is described as a fairly large company where positions can be managed without excessive market impact. For Olive Resource Capital, this combination of a catalyst-rich corporate event, temporary trading dislocation, and broad market weakness justifies increasing their weighting.

Discussion with Samuel Pelaez, President & CEO, and Derek McPherson, Executive Chairman, of Olive Resource Capital

Balance Sheet as the Critical Filter

With financing conditions having deteriorated materially, the pair place significant emphasis on balance sheet strength as the primary screening criterion for any new or increased position. Companies that entered the current downturn with thin cash positions face a difficult choice: slow their work programmes and lose momentum, or raise capital on terms that are significantly worse than those available even two months ago.

McPherson illustrates the point bluntly: a company with $3 million in cash contemplating a $10 million drill programme is in a bit of a rock and a hard place. Deals that might previously have been structured as straight share transactions now require the addition of warrants or other sweeteners, increasing the dilutive impact on existing shareholders. Cashed-up operators, by contrast, can continue executing on their programmes, maintain momentum, and avoid value-destructive capital raises. This distinction will increasingly separate winners from losers in the junior and mid-tier space.

Cost Inflation: Q2 Earnings Watch Point

Both Pelaez and McPherson flag rising energy costs as an underappreciated headwind for mining company margins in the quarters ahead. Using energy cost benchmarks of approximately 30% of total costs for open-pit operations and roughly 10% for underground mines, McPherson estimates that a move in the oil price from $60-80 per barrel translates to roughly a 7.5% increase in all-in sustaining costs for open-pit-heavy operators — before accounting for secondary inflation in explosives, reagents, and transport.

The timing is notable. Gold averaged above $5,000 per ounce in Q1, supporting exceptional margin expansion. Q2 is unlikely to replicate that combination of a strong gold price and low energy costs. The risk is a double compression: a lower average gold price coupled with higher input costs. That combination, the pair noted, will not destroy profitability, margins remain healthy but it will reset the rate of margin expansion that markets had come to expect.

M&A: The Conditions Are Ripening

The current environment is also expected to accelerate merger and acquisition activity. Pelaez argues that nominal deal prices matter psychologically to all parties involved, and that a 30% compression in target share prices makes it far more achievable for acquirers to offer a meaningful premium while still printing a number that feels reasonable to their own shareholders. Large producers generating record free cash flow have the financial firepower to make cash bids at premiums to current trading levels that still represent attractive economics relative to the gold price environment.

There is also, McPherson notes with some candour, a tactical incentive for acquirers facing a softer operational quarter to announce a deal, shifting market attention to growth and corporate strategy rather than cost pressures. The combination of these dynamics suggests the M&A calendar could be active in the months ahead.

The Investment Thesis for the Mining Sector

• Prioritise balance sheet quality above all else. Companies with 12-plus months of cash runway at current burn rates are best positioned to continue creating value without dilutive capital raises.
• Highlighted comapnies: Northern Star Resources offers a rare entry point into a best-in-class operator with a fifteen-year track record of execution, to accumulate on weakness with a multi-quarter time horizon. Meanwhile, Goldsky is consolidating a flagship asset while trading at an unusual discount likely driven by transaction mechanics. The completion of the Barsele acuuisition is a near-term re-rating catalyst.‍
• Screen for management track records through cycles. The companies most likely to outperform during and after a volatility event are those run by teams that have demonstrated capital discipline in prior downturns.‍
• Be aware of the Q2 earnings risk. Energy cost inflation and a potentially lower average gold price in Q2 may produce flat or declining margins quarter-on-quarter. This is a buying opportunity in high-quality names, not a reason to exit the sector.‍
• Monitor M&A closely. Free-cash-flow-rich senior producers have both the motive and the means to acquire. Junior and mid-tier companies with quality assets but compressed valuations are the most likely targets.‍
• Liquidity matters now. In a volatile market, positions in larger, more liquid names allow for tactical adjustments without market impact. Avoid illiquid names unless conviction in the underlying asset and management team is very high.

Macro Thematic Analysis

The geopolitical disruption underpinning current market volatility extends well beyond short-term commodity price moves. What Pelaez and McPherson are describing, in their references to the weaponisation of energy supply routes and the longer-term restructuring of global supply chains, reflects a fundamental shift in how nations and corporations are thinking about resource security.

The Strait of Hormuz carries an estimated 20% of global oil supply. Any sustained disruption to that chokepoint does not merely raise crude prices in the short term; it forces a permanent recalibration of energy procurement strategies across importing nations and industries. The analogy drawn to the weaponisation of the SWIFT financial messaging system following the Russia-Ukraine conflict is instructive. That action, initially viewed as a temporary pressure tool, triggered a years-long process of de-dollarisation efforts, bilateral currency arrangements, and alternative payment infrastructure development. The energy supply chain equivalent is now underway.

For the mining sector specifically, the implications are layered. First, energy represents a material input cost. Open-pit operations, in particular, face direct exposure to diesel price inflation, with the rule-of-thumb figure of 30% of total costs providing a useful proxy for the sensitivity. Second, mining operations in geopolitically proximate regions face logistics disruption that extends beyond fuel, chemicals, equipment, and personnel all move through supply chains that transit sensitive maritime routes. Third, and most structurally significant, the push toward energy diversification in mining operations in partial solar supplementation, alternative fuel sourcing, reduced dependence on single supply corridors is likely to become a capital allocation priority for major operators over the next several years.

The broader investment implication is that resource security, energy transition infrastructure, and commodities with strategic applications are likely to remain thematically dominant for the foreseeable future. Gold, as a monetary metal with no single-country supply dependency, sits at the intersection of multiple structural demand drivers of central bank diversification, safe-haven demand, and reduced confidence in fiat alternatives where the current geopolitical environment is only reinforcing.

TL;DR

Olive Resource Capital has repositioned its portfolio toward higher-quality, more liquid gold producers following a 20–60% sell-off across the junior and mid-tier mining sector driven by institutional forced deleveraging rather than deteriorating fundamentals. The firm is adding to positions in Northern Star Resources (ASX:NST), viewed as the best-in-class Australian gold producer at its most attractive entry point in fifteen years, and Goldsky (TSXV:GSKR), which is consolidating the Barsele project amid temporary trading dislocation. Balance sheet strength is the non-negotiable filter: companies unable to self-fund their work programmes face dilutive financing on materially worse terms. Q2 margins face a potential double squeeze from lower gold prices and rising energy costs, but the structural case for gold remains intact, M&A conditions are ripening, and for investors with a medium-term time horizon, the current environment offers some of the most compelling entry points in quality producer equities seen in over a decade.

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