Limited investment options to test gold bulls
So, when it comes time to take your money out and move on, Newcrest's share price gets trashed. For Newcrest shareholders, this was the week they took an unwelcome cold shower, with the value of their holdings hitting multi-year lows.
Even though the gold price has gained ground over the past few days, as investor sentiment on the efficacy of the US Fed's liquidity program has waned — helping to push gold clear of $US1400 an ounce — Newcrest has been punished.
Its management is seen as having been too slow to cut costs following the downturn in the gold price, and has been punished as a result. It is not alone, with Canada's Barrick Gold the other large local player that is also under pressure.
With an all-in production cost of about $US1100 a tonne for Australia-Pacific, which is being artificially held down by its Porgera mine in PNG - a cheaper producer than its Kanowna Belle mine in Western Australia - Barrick has began cutting jobs in the west over the past few days.
Barrick's Porgera mine, for example, produces about 120,000 ounces a quarter, with a cash cost of $US934 an ounce, benefiting from the processing of lower-cost stockpiles. This mine alone will account for about a quarter of Barrick's planned Australia-Pacific output of 1.7 million to 1.85 million ounces of gold this year.
The big North American goldminers such as Goldcorp, Barrick and Newmont have seen a handy pick-up in their share prices from April-May lows, rallying 10 to 15 per cent.
And despite the gloom and doom among local goldminers, some investors are willing to commit fresh funds for promising plays.
Take Indochine, a minnow that has ambitions of developing the Mt Kare gold deposit in PNG. It raised another $4 million this week in a placement at a premium to its share price. For any miner, let alone a gold explorer, getting a placement away at a premium takes some doing, especially in the present market.
Part of the residual interest in the stock is in a prospective corporate play if its reserves and mine plans firm up.
Similarly, there is investor interest in Gryphon Minerals which wants to develop a project in West Africa.
With more than $60 million cash on hand, it is well positioned to fund its proposed $200 million-plus project, but few investors are willing to look too closely until plans progress.
Gold bulls continue to call for a short-covering rally to push gold to fresh highs in the months ahead. But their optimism is belied by the view that gold is a store of value in times of inflation.
With the rampant deflationary forces unleashed on the global economy, this may continue to test the optimism of the bulls.
Frequently Asked Questions about this Article…
The article says international fund managers have few choices for Australian gold exposure other than Newcrest. That concentration means when those funds decide to sell, Newcrest’s share price can be hit hard — which helps explain why Newcrest recently fell to multi‑year lows.
According to the article, Newcrest has been punished because investor sentiment on US Fed liquidity programs has waned and its management was seen as too slow to cut costs after the gold price downturn — factors that contributed to the share‑price slide despite recent gains in the gold price.
The piece reports Barrick’s Australia‑Pacific all‑in production cost is about US$1,100 (per the article’s unit), and its Porgera mine in PNG is a cheaper producer than Kanowna Belle. Porgera produces roughly 120,000 ounces a quarter at a cash cost of about US$934 an ounce and will account for about a quarter of Barrick’s planned 1.7–1.85 million ounce Australia‑Pacific output this year. Barrick has also begun cutting jobs in its western operations.
Yes. The article notes North American majors such as Goldcorp, Barrick and Newmont have rallied about 10–15% from their April–May lows.
Some are. The article highlights Indochine, a small miner aiming to develop the Mt Kare deposit in PNG, which raised another US$4 million in a placement at a premium to its share price — a notable result for a miner or explorer in the present market.
Gryphon Minerals, which aims to develop a project in West Africa, has attracted interest because it holds more than US$60 million cash on hand and is positioned to help fund a proposed US$200 million‑plus project. However, the article says many investors remain cautious until project plans progress further.
Gold bulls are calling for a short‑covering rally that could push gold to fresh highs, arguing gold is a store of value in inflationary times. The article cautions, though, that rampant deflationary forces in the global economy may continue to test the bulls’ optimism.
Based on the article, everyday investors should watch company cost structures and management responses to lower gold prices (which affected Newcrest), production profiles and low‑cost assets like Barrick’s Porgera, recent share‑price rallies among majors, and the funding and cash positions of smaller explorers such as Indochine and Gryphon. They should also monitor macro drivers — investor sentiment on Fed liquidity, inflation versus deflation trends, and how those forces affect the gold price.
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