By Kishori Krishnan
Gold mining is down in the dumps, with production decreasing around four to five per cent per year. The days of peak production are way behind us. It is a sad story on the supply side. Even if demand stays the same, there is only one way scheduled for gold prices: rachet up.
Gold, traditionally a popular hedge against financial turmoil due to its store of value, has risen 5.7 per cent this year and briefly traded above $1,000 in February. It reached a record $1,032.70 on March 17, 2008. Traders insist that with investment demand and jewellery purchases rebounding globally, there are no factors left to play spoil sport at the gold party.
Gold is set to revist $1,000, given that “investors are much more focused on wealth preservation than upside returns because they are much more focused on risk management within portfolios,” according to Jason Toussaint, managing director of exchange traded gold at the World Gold Council.
“The economic environment in Asia is improving,” said Markus Bachmann, Johannesburg-based manager of the Craton Capital Precious Metal Fund, with $140 million in assets. “You can expect jewellery demand will potentially be supportive for the gold price.”
Gold rose toward $940 on Friday in Asia, as it continued to benefit from a weaker U.S. dollar, which has lost its allure as a safe-haven asset amid hopes for an economic recovery stoked by solid corporate earnings.
“Gold’s getting a bit of a bounce for now after last night’s weakness in the dollar,” said Adrian Koh, an analyst at Phillip Futures in Singapore. A weaker dollar also makes gold cheaper for holders of other currencies.
Gold was at $937.35 an ounce, up 0.4 per cent from the New York notional close of $933.30. “For the near term, I think gold’s very much still in a sideward consolidation mode and the next key supports are likely to come in around the $910-$920 regions,” Koh added.
U.S. gold futures for August delivery were at $937.6 an ounce, up 0.3 per cent. On Friday, first delivery of the August contract begins and December gold futures becomes the new benchmark.
Strong on sideways
Goldcorp Inc (G.TO) Chief Executive Chuck Jeannes expects gold to break out of its recent pattern and top last year’s record highs. Jeannes believes the yellow metal will break out after escaping the low summer volumes that often lead to sideways trading.
“It’s my belief that we’re going to get back over the $1,050 level in the year,” he said. While the gold price this year has been volatile, it has stayed mostly above $900 per ounce over the last several months.
The company, the world’s No. 2 gold miner by market capitalization, expects to produce 2.3 million ounces of gold this year, and sees that figure rising to about 3.5 million ounces once the Penasquito mine gets going at full tilt in five years or so. The mine is expected to produce 500,000 ounces a year over its 22-year life.
As the firm enjoys the benefits of higher gold prices and easing costs, it is accelerating spending on growth projects. A recent $840 million convertible note issue is helping. The Vancouver-based miner has also approved an additional $88 million in spending this year, which includes $14 million for exploration, which brings the total allocated funds for exploration this year to around $110-million. Most of the money will be spent at the company’s flagship Red Lake camp, in Ontario, and at the Eleonore project, in Quebec.
Though a $305.6 million forex loss put Goldcorp’s 2Q09 financial results in the loss column, strong operating cash flows and a successful $839.7 million issue convinced the company to resume activity on temporarily deferred projects.
Goldcorp shares rose 2.3 per cent on Thursday, to C$39,44 apiece in Toronto. On Wednesday evening, the company reported a $231.6-million net loss for the second quarter, compared with a $9,2-million loss in the same period last year, after recording a noncash foreign exchange loss on the revaluation of future income tax liabilities. Excluding this charge, adjusted net earnings were $99.2-million, compared with $83.2-million a year earlier.
The firm earned US$ 371-million, or 42 cents a share, in the three-month period that ended March 31, down from US$ 514-million, or 59 cents a share, in the year-ago period. Stripping out one-time items, profit was 34 cents a share. Gold production rose 0.6 per cent to 1.76 million ounces, while copper production jumped 9 per cent to 95 million pounds. While realized gold prices dipped slightly to US$ 912 an ounce from US$ 925, copper prices fell 16 per cent, which helped pull revenue down 6.6 per cent to US$ 1.8-billion. Cash costs per ounce rose to US$ 484 from US$ 395.
“Our outlook for gold remains positive, providing a favorable backdrop for the development of our next generation of lower-cost mines,” said Chief Executive Aaron Regent, who took over as CEO in January. Barrick operates nearly 30 mines around the world, and hopes to reduce its average cost per ounce by opening new mines over the next few years.
The stock was up 2.99 per cent on Thursday, to $36.82. The firm had reported a 52 week high of $49.87.
Russian metals giant OAO Severstal (CHMF.MM) is closing in on a takeover of Canada’s High River Gold Mines Ltd but a core group of shareholders continue to oppose the merger and show no signs of relenting. Shares of High River were up 2 Canadian cents, or about 7 per cent, at 30 Canadian cents Tuesday on the Toronto Stock Exchange.
The Russian steelmaker has raised its cash offer to acquire High River Gold (HRG.TO) by 36 per cent. Severstal said the new offer from Lybica Holding B.V., an affiliate of its mining division, is at 30 Canadian cents a share, 8 cents above its earlier offer. High River Gold, which has mines and exploration projects in Burkina Faso and Russia, has already recommended its shareholders to accept Severstal’s offer.
High River’s messy saga began last fall, when the Toronto-based company ran into a liquidity crisis in the middle of the market meltdown. After an overhaul of the board, High River was bailed out through a pair of private placements with Severstal, which assumed a 57 per cent control stake. Severstal was not done. It then made a friendly all-cash offer for the whole company in June, valued at Â¢22 a share. That was well above the Â¢4 that the stock bottomed out at last year, but a fraction of its value prior to the liquidity problems.
Agnico-Eagle Mines Ltd (AEM:N) said Thursday its gold production surged 76 per cent to 119,053 ounces in the second quarter, mainly because its new Kittila mine in Finland and the Lapa mine in Northwestern Quebec came into commercial operation.
The company popped up 6.9 per cent on the back of great second quarter results.
For the full year, it expects to produce 550,000 to 575,000 ounces from its Quebec, Finnish and Mexican mines. Net income in the latest quarter was $1.2 million or one cent a share, including a currency translation loss of $16.7 million, compared with $8.3 million or 6 cents a share a year earlier.
Century Mining Corporation (TSXV:CMM) has received a commitment for $25 million prepaid gold forward contract from a major international bank with a large gold trading business. The company is also planning C$20 million equity issue and has said it will raise enough money from the financial markets to restart its Lamaque Mine in Quebec in September despite a decision to scrap an earlier planned $65 million financing for the project.
The U.S.-based company, which trades on the TSX Venture Exchange, said it has hired Union Securities as the lead agent to carry out a C$20 million equity financing. Together, the two financings will help the company raise enough money to restart Lamaque, its major gold asset.
The Lamaque project has 1.1 million ounces of proved gold reserves and could hold several million more ounces. Lamaque is expected to reach full annual production of 105,000 ounces, at a cash cost of US$423 per ounce of gold produced.
Century also has existing gold production of 18,000 ounces a year at its San Juan Gold Mine in Peru.
Century shares were halted pending news on the TSX Venture Exchange. When trading resumed Thursday, the stock rose one cent to 16 cents, a gain of 6.7 per cent, on a volume of 984,000 shares.