The market's interest in this alluring metal has waned a touch....

The market's interest in this alluring metal has waned a touch. It peaked at 2067 USD per ounce on the 6th of August this year. The AUD price was 2863 per ounce. As I write this, on the 16/12/20, the price of Gold is 1851 USD and 2448 AUD per ounce.

There are many reasons to own gold including a history of holding its value, the weakness of the USD, as an inflation edge, for deflation protection, because of geopolitical uncertainty, supply constraints, increasing demands and portfolio diversification. Off course the other popular option that many of these reasons would apply for is Bitcoin. At present, my preference is for GOLD rather than Bitcoin. Bitcoin is something I struggle to comprehend. I plan on doing some more work on this in the near future. For those looking for more on Bitcoin, I would suggest listening to "The Investors Podcast". Preston Pysh has done extensive work on Bitcoin and has a regular podcast on this topic (1).

I believe the best way to get Gold exposure is through a part ownership in a company. The reason is that although a much riskier option, this is the option that provides the greatest upside. The best way to counteract this risk is position sizing. The company I have selected is Gold Road Resources Limited. A company I heard about on ****** (The Call), it had a favorable recommendation from Mathan Somasundaram.

Gold Road Resources (ASX:GOR) is an Australian listed Gold producer and explorer with a market capitalization of just over 1 billion Australian dollars. The important number for a producer is the All In Sustaining Costs (AISC). This cost of production in Australian dollars per ounce of gold was 1488 in the last quarter. This was higher than in the previous three quarters (1102,1135 and 1233). Realized gold prices for the last quarter was 2420 AUD. For the previous three quarters this was 2033, 2001 and 2498. All in GOR produced 55919 ounces of gold last quarter and is guiding for 250 to 270 thousand ounces for the full year 2020. Gold Road Resources has hedged some of its production. The remaining hedged position at 30 September 2020 was 79.2 thousand ounces at an average of 1853 AUD, which extends to November 2022 and represents about 20 - 25% of forecast production over that time. Clearly at the current AUD gold price at 2448, this hedge position is loss making.

As at 30 September 2020, the Company had cash and equivalents of 103 million AUD. As at the September 2020 quarter, Gold Road had repaid the remaining $25 million drawn on the $100 million Revolving Credit Facility (RCF) leaving the Company debt free. As at 30 September 2020, the Company had 879,924,748 ordinary fully paid shares on issue and 7,466,653 performance rights. A significant recent announcement by management concerns the prospect of dividends in the near future. Gold Road will target annual dividend payments which in aggregate represent 15% – 30% of free cash flow for each calendar year, payable by way of two half yearly payments.

Production is from the Gruyere Gold Mine (Gruyere) which is a 50:50 joint venture with Gruyere Mining Company Pty Ltd, a member of the Gold Fields Ltd group (Gold Fields), who manage Gruyere. Gruyere is a Tier 1 asset, defined as having a greater than 10 year mine life; production greater than 300,000 ounces per annum; a reserve greater than 3.5 million ounces and costs at the lower end of the cost curve. First gold was produced from this mine, located in Western Australia, in mid 2019. Exploration continues for GOR with respect to new targets in the relatively underexplored 100% owned Southern Project Area, including the Savoie, Beefwood, Hirono, and Kingston prospects.

Duncan Gibbs is MD and CEO. He joined GOR from AngloGold Ashanti. Mr. Gibbs is a Fellow of the Australasian Institute of Mining and Metallurgy, Graduate of the Australian Institute of Company Directors, and holds a Bachelor of Science (Honors), Geology. His total remuneration for the last year was 1.2 million. At the last annual report he only held 40000 shares. Justin Osborne, previously at Goldfields, has more than 3 million shares in the company. What does please me is three directors have recently bought a combined 35500 shares between 1.31 and 1.37 per share. Nevertheless, I always like to see the big boss plough some of his hard earned cash into his company, especially during share price corrections.

Overall, I feel that GOR is one of those rare miners, who are producing and intent on paying a dividend. The Gruyere mine is a Tier 1 asset, with one of the lowest AISC. Nevertheless, the company is not resting on its laurels and is searching for the next Tier 1 asset. The time to invest in gold and gold companies is during a correction in the price of the precious metal. I have taken a small position in GOR.

Reference

1. https://www.theinvestorspodcast.com/we-study-billionaires/