Gold has had a big 2016, up 25% so far to US$1,327 an ounce. The yellow metal surged in January when worries over weakening growth in the global economy turned into actual fear of recession, and pushing higher again in April and June as investors came to terms with chronically low interest rates and the fact that massive quantitative easing (central bank asset-buying) stimulus had so far failed spectacularly to boost economic growth.
Gold has always come into its own as a “safe haven” investment at times when ‘financial’ assets are falling, markets are skittish, political and economic risk seems to be on the rise, and volatility increases. The combination of economic and geo-political news that has assailed markets in 2016 certainly qualifies as one of those periods. Add to the mix the fact that more than $US14 trillion worth of government bonds – almost one-quarter of the sovereign-bond universe – is now offering negative yield, and gold’s attractiveness increases.
In these bonds – issued by the likes of Germany, Switzerland, France, Spain and Japan – bond investors in effect are asked to pay those governments for the privilege of lending them money.
According to Bank of America Merrill Lynch, the average yield of global government bonds has fallen to a record low of 0.67%, having halved since December.
It’s not a good option, and it makes gold look good as a store of value.
The prospect of further stimulus from governments and central banks is at the heart of the bull case for gold to rise further.
Investors have a wide range of options to invest in gold, ranging from the physical metal itself to exchange-traded products (ETPs) that track the gold price, to gold shares. The Australian stock market – which started its life funding gold mines – has drawn the attention of a lot of investors this year, because the gold producers offer a different kind of investment exposure to the other methods.
Gold miners can give investors leverage to the gold price because of their specific factors – their production volume, their costs and their margins. They don’t control the gold price, but they do control these factors, which flow through to the return from their mines.
This leverage can go the other way if the gold price falls, but to many analysts, the global economic situation implies that it will not, in the medium term. In this investment case, some Australian gold miners look attractive.
Gold production in Australia reached 292 tonnes (9.3 million ounces) in FY16, a 15-year high according to gold consultants Surbiton. But there are two crucial statistics in the world of Australian gold miners: the A$ gold price, and their all-in sustaining cost (AISC). (All-in sustaining cost is the total cost incurred in producing gold over the lifecycle of a mine: it is very different to the old ‘cash cost,’ which counted mining and processing.) From the A$ gold price and the AISC comes the margin.
And with the Australian dollar gold price trading at $1,761.46 an ounce – within touching distance of its record high of $1,806 an ounce in 2011 – margins look great for most Australian miners.
With many having AISCs of between $900 and $1,100 an ounce, Australia’s gold miners are in clover at current gold prices, if they can keep their costs under control. Several appear to offer significant value, going on analysts’ consensus target prices.
Here’s a rundown on how the numbers stack up for Australia’s gold miners, using analysts’ consensus target prices from FNArena:
Newcrest Mining (NCM, $22.14)
Market capitalisation: $17 billion
FY16 production: 2,439,000 ounces (up 1%) at AISC of US$762 an ounce
FY17 production guidance: none provided
FY17 forecast dividend yield: 0.9%
Expected move to analysts’ consensus target price: –10.1%
Australia’s largest producer, Newcrest is a global miner, with mines located in Australia (Cadia Valley, near Orange in New South Wales, and Telfer in the Pilbara region of Western Australia), Papua New Guinea (Lihir Island and Hidden Valley), Indonesia (Gosowong) and Ivory Coast (Bonikro).
Evolution Mining (EVN, $2.46)
Market capitalisation: $4 billion
FY16 production: 803,476 ounces (up 84%) at AISC of $1,014 an ounce
FY17 production guidance: 800,000 ounces–860,000 ounces at AISC of $985–$1,045 an ounce
FY17 forecast dividend yield: 1.4%
Expected move to analysts’ consensus target price: +11.5%
Created in late 2011 through the merger of Catalpa Resources Ltd and Conquest Mining and the concurrent acquisition of Newcrest Mining’s interests in the Cracow and Mt Rawdon mines, Evolution owns and operates seven gold operations, four in Queensland, one in New South Wales and two in Western Australia.
Northern Star Resources (NST, $4.32)
Market capitalisation: $2.6 billion
FY16 production: 611,288 ounces (down 2%) at AISC of $1,041 an ounce
FY17 production guidance: 485,000 ounces–515,000 ounces at AISC of $1,000–$1,050 an ounce
FY17 forecast dividend yield: 3.0%
Expected move to analysts’ consensus target price: +6%
Northern Star operates five mines in Western Australia, Jundee, Kundana (51% interest), Kanowna Belle, Plutonic and Paulsens.
St Barbara (SBM, $2.85)
Market capitalisation: $1.4 billion
FY16 production: 387,000 ounces (up 2%) at AISC of $933 an ounce
FY17 production guidance: 355,000 ounces at AISC $1,030 an ounce
Expected move to analysts’ consensus target price: +9.4%
St Barbara operates the historic Gwalia mine outside Leonora, as well as the Simberi mine in Papua New Guinea.
Regis Resources (RRL, $3.87)
Market capitalisation: $1.9 billion
FY16 production: 305,084 (down 2%) at AISC of $927 an ounce
FY17 production guidance: 300,000 ounces–330,000 ounces at AISC of $980–$1,050 an ounce
FY17 forecast dividend yield: 3.9%
Expected move to analysts’ consensus target price: –18.4%
Regis operates the Duketon gold project in the North Eastern Goldfields of Western Australia and the McPhillamys gold project in the Central Western region of New South Wales.
Independence Group (IGO, $3.79)
Market capitalisation: $2.2 billion
FY16 production: 135,864 ounces (down 9.9%) at $918 an ounce
FY17 production guidance: 117,000 ounces–129,000 ounces at AISC of $1,150–$1,250 an ounce
FY17 forecast dividend yield: 1.0%
Expected move to analysts’ consensus target price: –0.4%
Also a nickel, copper, zinc and silver producer from three mining operations in Western Australia, Independence’s gold production comes from its 30% interest in the Tropicana gold mine in Western Australia (of which the manager, AngloGold Ashanti, owns 70%).
Ramelius Resources (RMS, $0.48)
Market capitalisation: $252 million
FY16 production: 110,839 ounces (up 28%) at AISC of $1,157 an ounce
FY17 production guidance: 135,000 ounces
FY17 forecast dividend yield: 1.0%
Expected move to analysts’ consensus target price: +60% (Thomson Reuters)
Ramelius mines gold at Mt Magnet, Vivien and Kathleen Valley mines, in the Murchison and Leinster areas of Western Australia.
Doray Minerals (DRM, $0.60)
Market capitalisation: $186 million
FY16 production: 84,135 ounces (down 5.2%) at AISC of $1,229 an ounce
FY17 production guidance: 105,000 ounces–120,000 ounces at AISC of $1,300–$1,400 an ounce
Expected move to analysts’ consensus target price: +16.7%
High-grade gold producer Doray has two mines in Western Australia, Andy Well, in the Murchison region, and Deflector, near Geraldton.
Resolute Mining (RSG, $2.02)
Market capitalisation: $1.3 billion
FY16 production: 315,169 ounces (down 4.1%) at AISC of $1,210 an ounce
FY17 production guidance: at least 300,000 ounces at $1,280 an ounce
FY17 forecast dividend yield: 2.5%
Expected move to analysts’ consensus target price: at target price
Resolute operates two mines, the Ravenswood gold mine in Queensland and the Syama gold mine in Mali, Africa.
Silver Lake Resources (SLR, $0.53)
Market capitalisation: $267 million
FY16 production: 131,109 ounces (up 7.7%) at AISC of $1,281 an ounce
FY17 production guidance: 135,000 ounces–145,000 ounces
Expected move to analysts’ consensus target price: +13.2%
Silver Lake mines gold at Mount Monger near Kalgoorlie in Western Australia.
Saracen Mineral Holdings (SAR, $1.36)
Market capitalisation: $1.1 billion
FY16 production: 188,656 ounces (up 13%) at AISC of $1,095 an ounce
FY17 production guidance: none given
FY17 forecast dividend yield: 0.7%
Expected move to analysts’ consensus target price: +2.9%
Saracen has two gold mines in Western Australia, Carosue Dam near Kalgoorlie and Thunderbox near Leinster, which it re-opened in February after almost eight years in hibernation.
OZ Minerals (OZL, $6.00)
Market capitalisation: $1.8 billion
Half-year to June 2016 production: 57,662 ounces, versus 57,664 ounces 1H FY15 (no separate gold AISC reported)
FY17 production guidance: 125,000 ounces–135,000 ounces
FY17 forecast dividend yield: 2.2%
Expected move to analysts’ consensus target price: –1.4%
Australia’s third-largest copper producer at Prominent Hill in South Australia, OZ Minerals also mines the associated gold.
Alkane Resources (ALK, $0.375)
Market capitalisation: $186 million
FY16 production: 67,812 ounces (down 2.6%) at AISC of $1,149 an ounce
FY17 production guidance: none given
Expected move to analysts’ consensus target price: +78.7% (Thomson Reuters)
Alkane operates the Tomingley mine, near Dubbo in the central west region of New South Wales.
Metals X (MLX, $1.45)
Market capitalisation: $860 million
FY16 production: 173,956 ounces (up 15.3%) at AISC of $1,237 an ounce
FY17 production guidance: none given
Expected move to analysts’ consensus target price: +62% (Thomson Reuters)
Also Australia’s largest tin producer, Metals X produces gold from the Higginsville, South Kalgoorlie and Central Murchison operations in Western Australia.
AngloGold Ashanti (AGG, $5.15)
Market capitalisation: $2.1 billion
Half-year to June 2016 production: 1.74 million ounces, at AISC of US$911 an ounce, versus 1.98 million ounces 1H FY15
FY16 (calendar year) guidance: 3.6 million ounces–3.8 million ounces at AISC of US$900 an ounce–US$960 an ounce
Expected move to analysts’ consensus target price: n/a
Headquartered in South Africa, AngloGold Ashanti operates 17 mines in nine countries: its Australian mines are Thunderbox (70%) and Sunrise Dam, both in Western Australia.
OceanaGold Corporation (OGC, $4.80) (reports in US$)
Market capitalisation: $2.9 billion
Half-year to June 2016 production: 225,339 ounces, versus 176,999 ounces 1H FY15, at AISC of US$722 an ounce
FY17 forecast dividend yield: 0.8%
Expected move to analysts’ consensus target price: –13.5%
OceanaGold runs the Waihi and Macraes mines in New Zealand, and the Didipio copper-gold operation in the Philippines.
Perseus Mining (PRU, $0.515)
Market capitalisation: $624 million
FY16 production: 153,900 ounces (down 27.4%) at AISC of US$1,493 an ounce
FY17 production guidance: none given
FY17 forecast dividend yield: nil
Expected move to analysts’ consensus target price: +32%
Operates the Edikan mine in Ghana, West Africa.
Troy Resources Limited (TRY, $0.425)
Market capitalisation: $149 million
FY16 production: 82,826 ounces (down 32%) at AISC of US$816 an ounce
FY17 production guidance: none given
Expected move to analysts’ consensus target price: +65% (Thomson Reuters)
Troy operates gold mines in Guyana, Argentina and Brazil.
Alacer Gold Corp (AQG, $3.26) (reports in US$)
Market capitalisation: $948 million
Half-year to June 2016 production: 61,973 ounces, versus 104,976 ounces 1H FY15, at AISC of US$892 an ounce
Expected move to analysts’ consensus target price: +26.4%
Operates the Copler mine in eastern Turkey.
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