Why The Mining Industry Could Experience A Golden Year
Three decades of dwindling gold mine discoveries combined with increased industrial demand for gold across numerous industries has put a serious floor under the recent rise of the gold price.
Gold price was up 18.4 percent in 2019 and up about 44 percent since 2018 lows, with many analysts seeing gold going to $3,000 and as high as $10,000 per ounce. The impact of COVID-19 and a global market of near-zero interest rates paints a very bullish picture for gold prices, as well as safe haven demand. Three decades of underinvestment and over-regulation has resulted in a shortage of new economic discoveries, even as demand from new sources begins to inexorably devour more of finite global production.
Gold hasn't seen this kind of exciting price action since 2010 - an 18.4 percent uptick in U.S. dollar terms last year and close to a 44 percent increase since the recent $1202.44 low in September of 2018. A powerful blend of safe haven buying, highly accommodative (near zero) interest rate policy from the Fed through 2022, and the looming spectre of COVID-19 haunting the stock market has sent many investors stampeding back into the yellow metal.
The sudden surge in gold demand during the coronavirus pandemic has surprised many veteran industry analysts, with prices recently soaring to a seven-year-high despite key traditional offtake sources like jewelry seeing a big sales slump.
Jewelry normally accounts for over 52% of gold demand. However, World Gold Council (WGC) figures indicate a 65 percent year-on-year drop in the retail gold market within China, the world's largest jewelry maker, as well as a similar drop in the other major global jewelry market, India. The reality of the shutdown and the transparency of accumulating safe haven demand forces on the gold price are now cast in stark relief.
S&P Global Market Intelligence data from April indicated that some 20 mines in top producing countries were forced to close due to COVID-19 and ongoing economic uncertainty could continue to produce unprecedented levels of central bank stimulus around the globe.
At the same time, emerging applications for gold's unique properties continue to add new, broadening end markets across diverse sectors such as medicine, electronics, and high-tech industrial. Gold nanoparticles, for instance, are seeing increased use in everything from disease detection and treatment to enhanced efficiency solar cells and filtration systems.
Tiny particles and circuits may not seem like a big deal when we measure the global gold market by tonnage. But, with key applications in critical systems like municipal-scale water filtration and robust/high-performance consumer electronics components, the roughly 16 percent of global production currently consumed by these end markets is growing steadily every year.
Barrick profit beats expectations as copper, gold prices up
Barrick Gold has reported a 78% jump in first-quarter profit, beating analyst expectations thanks to rising gold and copper prices, and said it was on track to meet annual forecasts.
Production in the second half is expected to be higher than the first, the gold miner said, thanks in part to the ramp-up of underground mining at the Bulyanhulu mine in Tanzania and higher expected grades at Lumwana in Zambia, reports Reuters
Barrick’s first-quarter gold production fell to 1.10 million from 1.25 million ounces due partly to lower grades at its Pueblo Viejo mine in Dominican Republic.
Adjusted profit surged 78% to $507mn in the quarter ended March 31, from $285mn a year earlier, and Barrick announced a 9 cent per share quarterly dividend.
Stronger prices helped boost Barrick’s revenue from its copper mines in Chile, Saudi Arabia and Zambia by 31% from the fourth quarter. Overall earnings per share were $0.29, ahead of analysts’ estimate of $0.27.
“We expect a positive stock reaction to the earnings beat and strong cash flow,” said Credit Suisse analysts.
Potential for South Africa merger
Barrick CEO Mark Bristow, who has championed mergers across the gold industry, said he backed the idea of South Africa-listed miners Goldfields and AngloGold Ashanti combining.
Speculation has been swirling around the two companies and Sibanye-Stillwater, whose CEO Neal Froneman floated the idea of a three-way merger.
“I’m a South African, and this country has such a great mining history and it would be great to see a real gold business come out of the many failed discussions that we’ve seen,” said Bristow.
Goldfields declined to comment. In a statement, AngloGold Ashanti said it was focused on delivering on its growth plan to unlock value from its portfolio of gold assets.
Bristow also said he had met with the Democratic Republic of Congo’s new mines minister and other officials and was continuing to work on getting $900mn belonging to its Kibali mine joint venture out of the country.
“We have a solution, it just needs to be sanctioned by the appropriate authorities which haven’t been around for a while,” he said, referring to a recent government overhaul by President Felix Tshisekedi.