The future is bright for gold miners

Aug 21, 2012, 12:12

Merryn Somerset Webb

Posted byMerryn Somerset Webb

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I didn’t get much support for my editor’s letter in the magazine this week: Olympic delusions (subscribers can find out why here). But this column on gold shares appears to have gone down rather better. One of our favourite fund managers – Sebastian Lyon at Troy – has been in touch to tell me that he also thinks gold mining shares are about to see better times.

He notes that they are mostly cheap and has topped up holdings in Newcrest and Newmont. The former has had a nasty year thanks to production problems – its production forecasts have been cut twice already this year - but Troy suspects they are now through the worst.

A note also arrived from Angelos Damaskos of the Junior Gold Fund yesterday. He expects the gold price to “resume its uptrend” (as do we – not least because of China’s passion for it) and reckons that when it does the “rerating of gold mining equities should be quick and substantial”.

As ever, the companies that will benefit the most are those with “solid balance sheets, growing production-manageable cost bases and development potential” are the ones that are likely to be the best. However Damaskos also expects “acquisition activity to intensify as medium sized, cash-rich companies take advantage of market anomalies and snap up distressed situations”.

Given that two of the holdings in the Junior Gold Fund have recently had all-share offers made for them (Integra and Avion Gold), this doesn’t seem an unreasonable expectation. After all, this M&A activity, if nothing else, tells us that, at these levels, the larger players in the market see value in the smaller, and Mike Feehan, a regional manager at Barrick Gold is quoted as saying that "there’s more M&A opportunities today than there were a year ago, and as a company we’re looking at those assets on a daily basis". 

I mentioned a few stocks (tipped by Ambrian) in my weekend column: Why you should still hold gold. And my colleague Phil has a few more thoughts here: Is the gold mining sector about to take off?

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  • 1. Critic Al Rick

    (21 August 2012, 07:05PM)  Complain about this comment

    The future will brighten up if and when Boris returns!

  • 2. Romford Dave

    (21 August 2012, 07:35PM)  Complain about this comment

    If you tore your eyes away from Merryn's tasty offerings for a moment Rick, you'd see he was putting Bengt right only yesterday :)

  • 3. Critic Al Rick

    (21 August 2012, 07:45PM)  Complain about this comment

    Thanks Dave. I'll have a look ; - )

  • 4. David

    (21 August 2012, 08:30PM)  Complain about this comment

    Merryn, you've never commented on Condor Gold (CNR:LN) on the MoneyWeek site - mining gold in Nicaragua, and with major investment by famous investor Jim Mellon. Just alerting you in case you can comment one way or the other?

  • 5. Nicasius

    (21 August 2012, 11:53PM)  Complain about this comment

    While I don't dispute what Merryn says, I always think investing in gold and its derivatives is an admission of economic defeat or just a way of archiving your wealth. Gold is an investment alternative, when people in general are running scared. I would like to remind y'all that all markets are self-reinforcing and I remember when the analysts started to take a gloomy outlook on the future of the global economy, everything was going fairly well at the time, but they talked themselves into it. And now the financial "community" is running scared! Instead of lubricating the wheels of commerce they have put a spanner in the works. Assets are available in every aspect of economic activity, but, no we don't have any trust in activity because we are in a devaluing climate of opinion, having lost faith in the property market, we are now sinking our money into a dump of dead metal. Shame on you.

  • 6. Merryn

    (22 August 2012, 02:55PM)  Complain about this comment

    @David, I'm seeing Jim tomorrow - any particular questions for him?

  • 7. Ian

    (23 August 2012, 10:48AM)  Complain about this comment

    I would recommend potential investors in the equity space to listen to the recent interview on King World News with Ben Davies and as he suggests read the recent presentation given by Nick Holland, Goldfields CEO in Melbourne. There are many telling points within the presentation but to me mining companies inability to control costs & their manipulation of their true production costs are probably the most damning. It is telling that of all the gold mining equities I own, and there are quite a few, two of the best performers have been Franco Nevada & Royal Gold, both royalty companies.

  • 8. Boris MacDonut

    (23 August 2012, 03:56PM)  Complain about this comment

    The future is much brighter now they can rely on the S African Police to massacre strikers. The pressure on wages can be reduced with a few rounds of lead, to ensure the UK multi -millionaires keep their bonuses rolling in.
    Before the tirade of abuse starts ....I apologise for any misplaced compassion for ordinary folk.

  • 9. Bob

    (24 August 2012, 07:02PM)  Complain about this comment

    What puts me off investing in gold or silver miners is that I have no idea what the treatment of their workers is like - to me, investing in gold and silver miners seems no different to investing in tobacco companies. Are all gold and silver mines the same? What are the working conditions and worker rights in each mine? Are the miners salaried, health care and well trained... or do they turn up each morning hoping for work, paid by the day, have no rights, very little safety kit and... etc, etc. All the articles which mention gold and silver mine investing never mention any of the above.

  • 10. Boris MacDonut

    (24 August 2012, 08:25PM)  Complain about this comment

    #9 Bob. Think 18th century Slave trade. These people are effectively indentured labour. Their families are held to ransom, they are paid shockingly poorly,with no health and safety. The typical miner is aged 17 and does a 14 hour day. Investing in metals mining is a totally unethical pastime. Do not do it.

  • 11. Romford Dave

    (25 August 2012, 08:03PM)  Complain about this comment

    But incredibly rewarding if you pick the right miner, leading to the usual moral dilemma.

    1. Do you invest eyes wide open to the reward, taking the opportunity to improve your own returns and use some of the gains towards giving to good causes?

    2. Regard ethical investing as a pastime for sufferers of diminished testosterone levels?

    3. Give them a wide berth, knowing others will tread where you refuse to, concious that you will have to reduce your charitable giving but confident of boosting your returns in Heaven?

    Or

    4. Google Mark Twain and smile secure in your choice of mining quote?

  • 12. Benny (M/s Diane)

    (30 August 2012, 12:12PM)  Complain about this comment


    On a cautionary not I read an article which said that possibly 80% of Junior gold miners on the TSX could go belly up.

  • 13. David Green

    (30 August 2012, 12:36PM)  Complain about this comment

    Merryn- I have followed gold miners for a long time -one of the most promising is Lydian International (Lyd) on the Toronto TSX- first bought to my attention by the californian Brent Cook (exploration insights) who is probably one of the foremost experts in the gold mining field- look it up

  • 14. David

    (30 August 2012, 05:21PM)  Complain about this comment

    @Merryn, I am sorry I missed your comment about your meeting with Jim Mellon. It will be interesting to see if you discussed Condor and the company name features in your future articles! There is some discussion of a Canadian listing - and a dual listing would turn this AIM stock into a stock that could go in an ISA (because TSX is a recognised market) - and I think many shareholders would like to know about that - I would like a dual listing a.s.a.p. In general, this business of the government telling us where we can invest our savings is extremely frustrating - all AIM stocks should be open for ISA investment.

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