Since our last precious metals issue one year ago, gold’s fortunes have gone from lacklustre to brilliant.
Last August, the gold price had dipped below US$1,200 per oz. But early this summer, gold broke through US$1,400 an oz. – and not only held above that level, but continued to climb. As I write this, gold has reached US$1,532 per oz., boosted by increasing economic uncertainty, trade disputes between the U.S. and China, and declining interest rates. There are lots of pundits who believe the ascent of gold, which is still not anywhere close to its 2011 peak of USS$1,900 per oz., has only just begun.
Investors have taken notice of gold’s rise, but while some interest is beginning to return, the flow of actual funds still seems to be limited. Companies that have been able to raise money for gold exploration and development have, for the most part, been relying on a couple of investors. Eric Sprott alone was responsible for $139 million in private placements in gold and silver juniors in June and July, according to Oreinc, which tracks junior financings. Generalist investors haven’t followed suit yet – but Sprott is known as a contrarian investor who aims to stay ahead of the crowd.
Gold mining companies are becoming more confident. Gold M&A that started last year with Barrick Gold’s acquisition of Randgold, then Newmont Mining’s friendly merger with Goldcorp, has continued. Australian companies have emerged as buyers of Canadian companies and assets after Melbourne-based St. Barbara bought Nova Scotia miner Atlantic Gold and Newcrest Mining acquired a 70% stake in Imperial’s Red Chris mine. More M&A is anticipated.
Regardless of where the gold price goes from here, gold miners have real work to do on the ground. They must rebuild investor confidence by showing they can manage their operations with discipline, and build projects on time and on budget. They are making progress on this front, reining in costs and switching their focus from producing the most ounces to producing a return on investment. The rise of gold could be coming at just the right time for gold miners – so that they can make the most of their assets and wisely make new acquisitions with the same discipline they’ve been forced to embrace over the last seven years.
At the same time, gold miners must also gain the trust of the general public, a large portion of which views all mining as environmentally and socially destructive. For gold miners, there’s another layer of negative perception tied to the use of cyanide – a highly toxic chemical – in conventional gold processing technology. Advances in gold processing are being developed that could help ease public concerns about cyanide by eliminating its use altogether. (See story on page 17.)
While these alternatives are still to be proven on a commercial scale, they may hold the key to an even brighter future for gold miners.