Markets: Small spot relief

The recent rise in the gold price has only mitigated slightly analyst concerns that gold miners’ expansion plans are problematic.

Shares in many gold miners surged after the price of spot gold added to its two-week gains, dampening concerns some investors may have on the spending plans of the companies.

The spot price for gold has gained 6.6 per cent since July 8 to $US1318.04 at 1526 AEST. Some investors believe US Federal Reserve Ben Bernanke’s statements last week that its $US85 billion monthly will not end soon is helping the price of gold increase as some view it as the ultimate store of value.

But Morgan Stanley says the 16 per cent decline in the spot gold price in the last 12 months is challenging for some gold miners who are about to embark on capital expenditure programs.

Medusa Mining is committed to its Banagnhilig project, but that it will “challenge the company financially unless it opts for external funding, or the gold price materially re-rates", says Morgan Stanley.

Medusa’s shares surged 44 cents, or 24 per cent, to $2.26 after the price of spot gold  rose 1.7 per cent today.

Gryphon Minerals is seeking finance to develop the Banfora Gold project, Burkina Faso. “We think $US250 million to $US300 million will be required,” says Morgan Stanley. “We see modest risk of asset value adjustments.”

Shares in Gryphon gained 1.5 cents, or 10 per cent, to 16 cents.

Alacer Gold, according to the US investment bank, is cashed up after selling the Frog’s Leg gold deposit. The company is seeking to sell its other Australian assets, Morgan Stanley says, as it seeks to focus on its Turkish open pit mine.

Shares in Alacer were unchanged at $2.39.

Regis Resources says expansion of its Rosemont mine will keep cash levels subdued at the company until the project generates cash, according to Morgan Stanley. Regis at the meantime is debt free, and will have the option to employ external funding if the gold price slides.

Shares in Regis rose 21.5 cents, or 6.5 per cent, to $3.515.

Morgan Stanley says Resolute Mining’s Syama expansion as challenging for the company’s finances, even assuming some debt, with gold at US$1,200. Resolute has delayed the project to provide a more manageable spread of capital expenditure.

Shares in Resolute increased 11.5 cents, or 17 per cent, to 80 cents.

Evolution Mining has completed its major spending on expansion for the moment. The underground mines’ sustaining capital expenditure and stripping activities at Mt Rawdon provide the bulk of future capital expenditure, says Morgan Stanley.

“We see the funding program as manageable at US$1,200 an ounce for gold, but in our view it could require more use of available debt,” the investment bank says. Evolution maintains has a $200 million revolving credit facility, which was drawn down to $110 million at end of March.

“We see some risk to the carrying value of Evolution’s mining and exploration assets, following the recent falls in the gold price,” says Morgan Stanley.

Perseus Mining’s Sissingue project “will require additional funding, perhaps beyond the company’s US$100 million undrawn credit facility,” it says.

Evolution gained 9 cents, or 13 per cent, to 79.5 cents.