Markets: Grading the gold miners

Despite a lift in the gold price on the back of a spike in Chinese demand, Invictus says miners will have to achieve high grades to stay in the game.

A rebound in the gold price from current levels is building amid increased demand for the physical bullion by China as evidenced by the increase in gold lease rates, says Michael Jones, managing director of gold explorer Invictus Gold.

This year China has imported more than 1400 tonnes of gold or two thirds of the world’s annual production, according to Jones. Physical gold supply as a result is tight, he says, building pressure on the gold price to rise.

We’re "at or around the bottom” in the price of gold, Jones, who has worked in the gold mining industry for 25 years, told Markets Spectator.

Since September 5, 2011 when spot gold was at $US1900.23 an ounce, the price has fallen 33 per cent to $US1269.71 at 0816 AEST, according to Bloomberg data. Spot bullion is up 5.8 per cent since June 27 this year when it fell to $US1200.65, according to Bloomberg.

Those predicting gold to rise to $5000 or drop to $500 are implying serious economic turmoil, says Jones. If the price rises so dramatically there will be significant global inflation, he says. If it falls the global economy has fallen into deflation, according to Jones.

At current gold prices those miners who garner only one to two ounces per tonne will find their operations uneconomic, says Jones. He is hoping Invictus’ Australian and Turkish deposits can yield between four and eight ounces a tonne.

“Grade is king,” says Jones. “Only the highest grade mines will survive if the gold price remains at these levels”.

Invictus shares have gained 51 per cent in the last 12 months, according to Bloomberg data. The stock yesterday was unchanged at 5.3 cents giving the company a market value of $5.9 million. 

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