THE ability of goldminers to reinvent themselves has never been more important than in the wake of gold’s 33 per cent price slide since its high of $US1920 an ounce in September 2011.
But as an investor, if you can hook on to those that have, there is some big money to be made. Some stocks in the sector have more than doubled in recent months as they start producing.
Gold is trading at about $US1300 an ounce, having gone below $US1200 late last year, and mineral exploration is definitely on the wane.
Producers that were reliant on bulk tonnages but whose costs were above average have fallen by the wayside, and names like Apex Minerals, St Barbara Mines and Newcrest come to mind.
Yet some are managing to remodel themselves. Gold and base metals producer Aurelia Metals has almost doubled since we tipped it eight months ago.
This company has been climbing off the back of its positive exploration results at its Nymagee project near Cobar, NSW.
Aurelia has also rerated because production has begun at its Hera project, which it spent $100 million developing.
The facility is close to Nymagee and has a capacity of 400,000 tonnes and is forecast to produce 30,000 ounces of gold a year.
Gold developers have been hit even harder as they struggle to turn themselves into a producer such as Aurelia.
One such company is Gryphon Minerals, which is developing the Banfora mine in Burkina Faso, Africa.
Its stock climbed above $2 in late 2011, which reflected a resource of some 4.5 million ounces. In the past year or so, it has traded between 12c and 25c.
This is chiefly the result of the lower gold price, which has lowered the project’s reserves, or the amount of gold it can economically extract.
This currently sits at 800,000 ounces.
But Gryphon’s stock has bounced almost 60 per cent to 19c in the past month. Instead of the $200m-plus cost of a carbon-in-leach process, it intends to use the heap leach process, which extracts less gold, but costs in the region of $80m.
The cost is close to its current market cap, and it has about $35m in the bank and has secured project finance from Macquarie Bank worth $60m.
“This is the best funding position of any of the 20 companies with development projects in the gold space,” says Canaccord Genuity analyst Reg Spencer, whose price target for the stock is 32c.
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