Media comment today on an issue that impacts NRW ; an editorial from Sean Smith at the West Australian noting current prices mean a 30% profit upgrade for companies mining gold.
But he says JP Morgan’s view is this only applies to mid tier companies.
....You may remember Sean as the author who wrote several annoyed stories on Gascoyne after it was placed in administration.
He names no names in this article and yet his summary of gold’s hero status in an very uncertain market, seems particularly negative (in the latter section) about projects which resemble one NRW is heavily invested in;
NB last Friday GCY confirmed its AGM would be held on Thursday, April 30, stating;
.. “As previously announced, the administrators have kept the operation trading whilst progressing a dual track process to achieve either a sale or recapitalisation of the Gascoyne group or its assets. The dual track process has progressed significantly but remains ongoing.....”
Gold loves uncertainty but even the favourite safe haven go-to yesterday struggled to cope with the heightened anxiety levels now rattling global financial markets. Cracking $US1700 an ounce for the first time in eight years, the metal rode as high as $US1702.45/oz, dragging local miners higher in its wake.
Northern Star Resources was one of a string of gold stocks along with Saracen Mineral Holdings and Evolution Mining to defy the early carnage, capturing $15.09 before gold prices suddenly reversed in early afternoon trading. At day’s end its shares were languishing at a session low of $14.22.
There’s more than enough for the metal to feed off in this market downturn — coronavirus, turmoil in the oil market, collapsing equity prices, falling bond yields and the threat of a global recession.
Yet early last night, gold was struggling to hold on to its day’s gains in volatile and swinging trading, having retreated back into the mid $US1660s. Australian-dollar denominated gold was up about $7 at about $2539/oz. Spot gold was later down 0.1 per cent at $US1672.32/oz while US gold futures settled up 0.2 per cent at $US1675.70. At least yesterday, the coronavirus-led jitters transcended normal investor behaviour, suggesting that not even gold is immune all the time. Though another theory doing the rounds was that the price retreat was linked to gold sales by some investors facing margin calls in stocks. The metal has already had a good run this year, with investors topping up portfolios with gold as the post-virus economic outlook worsens. At $US1700/oz it was up 12 per cent since January, after gaining 18 per cent last year.
Holdings in bullion-backed exchange traded funds are at a record, “buttressed by the most bullish bullion environment since the global financial crisis”, according to investment bank Citi. Those price triggers include 10-year US Treasury yields yesterday plunging below 0.5 per cent to a record low amid the stampede for safer assets.
Not all gold stocks are beneficiaries. JP Morgan reckons the higher spot gold prices translate into 30 per cent profit upgrades for the mid-tier miners it covers.
But history suggests that investors become increasingly more discerning in uncertain times, opting for gold producers with scale and efficiency on their side over higher cost miners with shorter life operations that have struggled to deliver on their promise.
But there’s also the danger — some would say the inevitability — that these higher gold prices will lead to another round of dross projects, more often than not in picked-over, historic fields, being dusted off and offered to investors via new floats.
Only the most uneconomic of deposits couldn’t make money at these prices. But what goes up, must come down.
And while it’s difficult to imagine gold giving up too much ground soon given the current environment, it has averaged just $US947/oz over the past 20 years and $US1357 over the past 10. The Australian gold price has averaged $1171/oz since 2000 and $US1610/oz since 2010.
Projects that couldn’t or can’t make money at the pre-rally levels of about $1620/oz in August 2018 are going to struggle when prices retreat, even with the aid of those modern exploration techniques touted by company promoters.
NWH Price at posting:
$1.97 Sentiment: Buy Disclosure: Held
(20min delay)