Gold Mining Journal, Issue 155
There is a strong sense that we are heading towards a defining point in the current gold cycle.
With gold hitting record highs – $3,354/oz at the time of print – producers are making unprecedented amounts of cash. This will be borne out in this month’s producer quarterly reports for the March period, in which the Australian dollar gold price hasn’t fallen below $3,000/oz.
In a flash note last month, Canaccord Genuity Tim McCormick recommended investors get in ahead of the release of those cashflow numbers.
“If sustained at current levels, we should see a March quarter average [gold price] of $3,165/oz,” McCormick said. “This points to the potential for earnings and cashflow outperformance for our Australian based producers when they report next month. We think investors should be positioning for positive results now, particularly as the sector is still trading on undemanding valuations.
“We also feel the latest $300/oz jump is largely disconnected from the impacts of inflation, with multiple industry channel checks pointing to a plateauing of significant input costs, and in some cases even reductions.”
If those predictions do come to pass, the established gold miners will be unencumbered by the cost escalation that dampened 2022 and 2023, effectively becoming cash machines were the gold price to stay high.
The difference with this current boom and other recent gold trends is that there are finally signs juniors are starting to feel some love from the market as well.
It has been a long, hard down cycle for gold explorers as first risk sentiment led investors to avoid them before commodity trends saw the market ignore them in favour of critical minerals speculation.
Now, with critical minerals deflated for the time being, the gold price is taking the headlines and retail investors, in particular, will be considering how they can get further leverage at the small end of town.
For juniors, there is the added bonus that miners are also scouting for investment opportunities. Producers are understandably increasing production rates to capture the rampant gold price but this inevitably leads to dwindling reserves and shorter mine lives.
We have discussed at length in recent editions that the mid-tier miners haven’t always been the best explorers and the most upwardly mobile among them have had a better success rate buying ounces than finding them.
They need new sources of gold, have the cash to pay for them and are now turning to juniors.
This is the competitive tension juniors thrive on. It allows them to keep all options open throughout their project development with no need to sell out early because there’s no chance of raising project finance, or hastily committing to construction before they are ready.
Such a trend will also be reward for those explorers who avoided the temptations of critical minerals and stuck to gold. The last two years may have been frustrating for them, but they are emerging into the light with advanced projects which will be attractive to investors and larger corporates.
In contrast, those “nimble” juniors who swapped out gold assays for lithium samples will have to start again and the delay could prove fatal to their chances of attracting investment.
The gold price may eventually come off its lofty highs, but for the Australian sector, the super-charge of the last few months could set dozens of companies up for a decade or more.