Time to buy Gold?

I thought I would expand on my previous post and outline another new gold equity position. Previous post with same title is on the GOR thread.

Firstly, have a close look at this remarkable graph I have attached. This graph comes courtesy of buybitcoinworldwide.com (1). It demonstrates the first boom in the price of Bitcoin in late 2018, when at its peak, 1 Bitcoin bought just over 14 ounces of gold. Currently, 1 Bitcoin buys 12.3 ounces of gold. It is also interesting to note that just like other risk assets, Bitcoin underwent a correction in March, when its price to gold ratio fell to 3. This chart indicates that as the two main plays against fiat currency and money printing, either Bitcoin is on another boom and bust cycle, or gold is significantly undervalued.

Bitcoin appears to be here to stay. As the Washington Post recently reported, what started as the domain of Libertarians, drug dealers and later speculative retail investors, is becoming more main stream (2). As the Post reported, up to 36% of institutional investors now have cryptocurrencies in their portfolios. Nevertheless, what will the approach of the major governments be towards cryptocurrencies? They are unlikely to relinquish their fiat currencies, that allow them to manipulate fiscal and monetary policy. Furthermore, news like the seizure of 1 billion dollars worth of Bitcoin by the US government (3), linked to Silk Road (dark web marketplace), does not help the cause of those who seek a more mainstream role for Bitcoin.

However, what I principally take from the chart, is that gold is cheap.

Hence, I have added another Australian gold producer to my portfolio. Today I bought a small stake in Regis Resources (ASX:RRL) at 3.83 per share.

In the last FY RRL produced 352,042 ounces of gold at an All In Sustaining Cost (AISC) of 1246 AUD per ounce. They sold their gold at an average cost of 2200 AUD per ounce. They still have almost 400,000 ounces hedged at 1614 AUD per ounce. Regis Resources produces its gold from the Duketon Gold Project in Western Australia. The main issue with RRL is that production from Duketon is in decline and the company needs to find other assets for production. Exploration continues about the Duketon Gold Project, however, the companies most important prospect is the McPhillamys Gold Project in New South Wales. It is still going through the assessment and development project and commissioning is not expected to occur until 2022 at the earliest. Any setbacks related to this project will be especially damaging to the company.

Jim Beyer is the CEO and MD. He is a mining engineer, previously with Mt. Gibson and prior to that he was the GM at the Boddington gold mine. At the last Annual Report, he held 59,890 shares in the company. Fiona Morgan is the director with the greatest shareholding at 510,780. In the current FY, 4 directors have bought approximately 29 thousand shares on the market. Mr. Beyer's total remuneration was 1.3 million for the previous FY. With the recent share price weakness, he has not followed his fellow directors into the market, this is something I would like to see.

The financial statements are impressive (not just for a resources company), but an investment in a gold company is all about the price of gold and how much of it the company can continue to produce. For RRL, this will be about replacement of gold mined at Duketon, with another source. Will the company use its balance sheet to acquire another producing asset? Ideally organic growth will be through exploration success. This however requires some degree of luck in addition to skill. Here there is a need to trust that management will be careful custodians of shareholders capital.

Reference

1. https://www.buybitcoinworldwide.com/bitcoin-price-in-gold/

2. https://www.washingtonpost.com/business/does-bitcoin-boom-mean-better-gold-or-bigger-bubble-quicktake/2020/12/20/4bbbd80c-4280-11eb-b58b-1623f6267960_story.html

3. https://www.cnbc.com/2020/11/05/1-billion-worth-of-bitcoin-linked-to-the-silk-road-seized-by-the-us.html#:~:text=The%20U.S.%20government%20seized%20an,the%20history%20of%20the%20agency.