Gold Mining Sector On Way Up?
New projects are taking foot in the gold mining industry, despite the fourth year of downtrodden gold prices. The market knows that future economic uncertainty will lift this sector.
The completed gold mining merger and acquisition number says something about the sentiment: $3 billion in projects through first five months of this year, twice of 2014’s numbers, says Thomson Reuters GFMS, a metals research consultancy.
Interest in the market, at the same time, is near record highs, with some fund managers examining the sector. In the first quarter, Paris-based asset manager Carmignac Gestion bought 11.65 million shares of Goldcorp.
“The perception that mining equities show good value is starting to spread,” said Hedley Widdup, a fund manager at Melbourne-based Lion Selection Group, which invests in small mining companies and explorers.
“Since the start of this year, there has definitely been a change in sentiment,” he said, though it “is far from pervasive.”
As Reuters reports:
To be sure, no one is expecting an overnight resurgence and signs of pain are still widely visible – in bankruptcy filings, job cuts and an industry preoccupation with reducing costs.
And though the gold price is not forecast to recover this year, a rebound could start next year, albeit slowly. GFMS is forecasting an average price of $1,170 an ounce this year, below the current $1,185. Its 2016 forecast is $1,250.
“We felt that finally it looked as though you might be able to pick up projects,” said Marc Prefontaine, Chief Executive of Canadian gold miner Orla Mining (OLA.V), which started operations this month. He said he didn’t know when the gold market would rebound, “but we just felt it was not going any lower.”
Prefontaine, who was CEO of Grayd Resources before it was sold to Agnico-Eagle Mines (AEM.TO) in 2011 for $275 million, says conditions are good for a full-time return to the industry.
“There has been more interest from generalists at the broker conferences for meetings,” said David Harquail, Chief Executive of gold royalty company Franco-Nevada Corp (FNV.TO). “Often these generalists have no positions in the gold sector.”
“I don’t think commodity prices are going to dramatically go up from here but I do think that the individual companies’ ability to cut costs will differentiate their performance,” he said. In the gold sector, he favors South Africa’s AngloGold Ashanti.
A few large generalists have come onto Kinross Gold Corp’s share register in recent months, said Andrea Mandel-Campbell, a spokeswoman for the world’s seventh biggest gold producer. She declined to name them.
“There is recognition that there is value in the sector and the market is starting to sense that the companies are better managed now,” said Joseph Forster, portfolio manager at Van Eck, one of the gold mining sector’s biggest shareholders.
At United Coin & Precious Metals we have seen the effects of increased interest in precious metals. Sales are up. We anticipate this to continue as parts of the sector start to rebound from the consolidation.