1. Yes there is always normally a Contango but the point the GMD CFO made is it has not been this strong for 20 years and as my post above shows look what happen to the POG 20 years ago from 2004 to 2011 when it increased by 350%. I am not suggesting POG will go up by as much as it did between 2004 and 2011 and I really have no idea how much further it will rise but many experts are very bullish on the POG.
2. I disagree the POG is not that relevant for 2 reasons. The first is profits. Let me illustrate with an example. Assume a gold miner produces 200,000 k ozpa and has AIC of $A1,500 and alternatively $A2,000 and ignore tax to kept it simple. At a POG last October of $2,850 and now $3,450 an increase of 21%. The profit results are AIC of $1,500 - $270m and $390m ie 44% higher profit. At AIC of $2,000 the results are profit of $170m and $290m an increase of 71%. The SP impact on both examples will be very significant. Note that profits increase by a multiple of over 2 and over 3 times the increase in the POG - so all producing gold stocks SP should increase by multiple times the increase in the POG. Whether or not it is high margin or not the impact on profits is substantial.
3. My second reason is summarised here. Gold stocks are currently very out of favour and have been for a few years. Expert gold stock watchers suggest they are the most under valued in 50 years. Further POG increases, and I am talking about significant increases of hundreds of dollars, will most likely lead to a gold mining bull market. If there is a bull market we will see a very big increase in SP of gold stocks. In a bear market stocks maybe undervalued by 50% and in a bull market they may be over valued by 50%. Just like we saw in 2022 and 2023 in the bull market for lithium stocks, if gold stocks enter a SUSTAINED ( ie not just a year but multiple years) bull market we are likely to see gold stocks undergo a substantial re-rate - they may go up by multiplies of current SP’s at least 2 times and probably more like 3-5 for many stocks.
In a sustained gold bull market the increase in large miners SP’s is less than that for small to medium sized producers including developers while exploration stocks see the biggest increases. At least that is what past bull markets have shown for commodities including gold. The reverse applies in bear markets. SPR falls into the second group.
Gold stocks are still in a bear market as they are still way under valued according to the experts. POG since October has increased by 20% but GDX has only increased by 17.5% while gold mining profits have probably increased 2-3 times the 20% so if SP’s reflected profits the GDX should have increased by more like 50%. Back in November 2023 experts were stating gold stocks were very undervalued ie most in 50 years so gold stocks are even more under valued now than they were in November 2023.
While POG has increased by 20% since last October it is unclear to me if we are in a gold bull market. If we are then it is probably just the start and I have no idea when stocks will be in a bull market.
Ps - there is no certainty we are heading to a gold bull market or a gold stock bull market and even if one occurs I have no idea when we will be in one as we probably won’t be able to call it a bull market until it has been going for 6-12 months.
The above discussion sets out some of the reasons I am bullish on gold and more so gold stocks and in particularly SPR as it is more leveraged to increases in the POG than most other gold producers and developers.
SPR Price at posting:
65.5¢ Sentiment: Buy Disclosure: Held
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