Money begins to flow towards the gold mining juniors in a big way, as a new round of corporate activity looms
As gold hit an intra-day high of over US$1,980 this week, a record in US dollar terms, gold mining companies reaped the benefits.
Among the better performers benefitting from gold’s recent run have been Anglogold (NYSE:AU), up by 75% over the past six months, Newmont Corporation (NYSE:NEM), up by more than 50%, Kinross Gold Corporation (NYSE:KGC), up by almost 80%, and of course Barrick, which has risen by slightly less than 50% over the past six months.
One reason for the relative underperformance of Barrick and Newmont is that both are still digesting recent hefty acquisitions – in Barrick’s case it acquired London’s gold champion Randgold last year, while Newmont is still absorbing the recent acquisition of Goldcorp, completed earlier in 2019.
Will there be more corporate action? – you can bet on it.
Certain participants in the gold mining industry, for example Artem Volynets of Chaarat Gold Holdings PLC (LON:CGH), have been predicting a round of consolidation in the gold space for some time. In Chaarat’s case, the talk has been turned into action, as it has acquired new projects and production in its geographical area of expertise, Central Asia.
But, whereas much of the action has to date been at a fairly high level, there are signs now that the activity spurred by US$1,900 gold might start to trickle down to the most junior end of the market. In recent days we’ve seen Anglo Asian Mining (LON:AAZ) tie up a deal with Conroy Gold and Natural Resources PLC (LON:CGNR) which is likely to result in rapid progress on potential targets amounting to 8.8mln ounces of gold in Ireland.
It’s a simple enough equation, whichever way you come at it. The producing companies, which tend to have fixed costs overall, and which lately have also been enjoying the benefits of reduced fuel costs, are now enjoying much larger margin because of the higher gold price.
That in turn means greater cashflow, which means there’s more money available for development pipelines, whether that’s in existing projects or new dealflow.
None of this will be new to Australians, who have been enjoying record gold prices in Aussie dollar terms for some time now, and a local mining boom to boot. Companies have been swarming over the Paterson Range for example, in Western Australia, as well as to the east of the country in Victoria and New South Wales.
Here, junior companies like ECR Minerals (LON:ECR) and Greatland Gold (LON:GGP) are beginning to pick up traction as the majors cast their eyes our for the next big discovery. Greatland has been in business with Australia’s champion Newcrest for some time now, and the positive results from its Havieron project just keep on coming.
Last year Saracen (ASX:SAR), Evolution (ASX:EVN) and St Barbara (ASX:SBM) all went on the acquisition trail, and it would hardly be surprising to see ECR, Greatland, or even recent new arrivals like Kincora Copper (CVE:KCC) caught up in a new round of action.
What does this mean for the junior market in general? One immediate result is that money is now around for financing exploration and development in a way that just wasn’t the case 12 months ago, or at least wasn’t available outside of Australia.
After a cannabis and bitcoin-related hiatus, investor appetite for gold and gold exploration has returned with a vengeance. Companies are raising money all over the place, with the only real hurdle to new deals being the level of discount that brokers want to apply. Some are taking the plunge anyway, reasoning that the rising gold price will take the edge off the discount in a matter of days. And, with gold pushing towards US$2,000, and some commentators now talking up a US$2,500 price without sparing their own blushes, who can say that they are wrong?