Gold will break $US1500 an ounce before the end of the year, according to analyst Les Szancer, of Kinetic Securities. Szancer argues the gold price will rise in response to massive US debt weakening the American economy and greenback. Also, the gold price goes up in uncertain times and is widely regarded as a hedge against inflation. “Gold is seen as a safe haven – this will never change,” Szancer says. “And global miners don’t produce copious amounts of gold, so this also helps the price.” Szancer’s portfolio of gold producers and explorers isn’t a recommendation to buy. “However, the companies I have selected all have the potential to increase in value when gold takes off again,” he says.
Lihir Gold owns a world-class resource offering significant mine life in Papua New Guinea. Lihir also has operations in Australia and West Africa, and produced more than a million ounces of gold in 2009, up 27 per cent on the previous 12 months. Lihir Gold and Perth-based producer Equigold NL merged in June 2008, and Szancer says Lihir will continue seeking merger opportunities to diversify its revenue base. “Current gold prices are providing strong cash flows and we believe the Lihir share price is under-valued,” he says.
Newcrest Mining is Australia’s largest gold producer and should be part of any balanced resources portfolio, Szancer says. Newcrest produced 1.63 million ounces of gold for the 12 months ending June 30, 2009, and the company is targeting between 1.81 and 1.91 million ounces for 2009/10. It’s also targeting copper production between 83,000 and 87,000 tonnes for 2009/10. “Newcrest has the best asset suite of the few remaining independent Australian gold producers,” Szancer says. “It’s focused on lowering costs and maximising output at all sites. As an unhedged producer, Newcrest will benefit from a rising bullion price.”
The core asset of Kingsgate Consolidated is the 90 per cent owned Chatree gold and silver mine in Thailand. “Chatree has proved to be a very low cost operation, generating good profit figures,” Szancer says. “However, the potential to start mining at the Chatree North project, extending from an existing pit containing around two thirds of the current reserve and resource base, is a real driver of profit growth.”
On February 4, 2010, the gold price was marginally above $US1100 an ounce, about $US125 off its 12-month high of $US1226 in late 2009, which Szancer puts down to profit taking and a temporary spike in the US dollar. Szancer argues the US dollar will weaken not only from massive debt, but from printing money, which will eventually drive up inflation and interest rates. “Sooner or later, the US will have to pay for printing so much money, and the end result could be another recession,” Szancer says. “Gold rises when the US dollar falls. So a rising bullion price should be reflected in gold company share prices.”
The strategy for Azumah Resources is to explore and stgelop its 100 per cent owned Wa-Lawra gold project in Ghana, West Africa. Szancer says Ghana is one of the most productive gold regions in the world and the project encompasses an inferred gold resource of 225,000 ounces at the Kunche Main deposit.
Szancer says Adamus Resources owns 90 per cent of the Southern Ashanti Gold Project in Ghana. He says the Minerals Commission of Ghana approved mining leases for the project and exploration continues to produce positive results. “The project has the advantage of being in close proximity to sealed roads, grid power, major port facilities and the major mining centre at Tarkwa,” he says.
Gold, like any investment, carries risk. The degree of risk from investing in gold stocks varies depending on whether the company is an explorer or a producer. Explorers can run out of money if they don’t find enough gold, or it’s too expensive to mine. The gold price would weaken on reducing demand, or if the US economy strongly recovered. Szancer says the political climate of any country should be considered before investing in an ASX listed company with offshore mining operations. “The political climate in Australia is much more stable than in some African countries,” he says. “And, while the rules at the start can be firmly established between parties, they can and do change during the game. And when the rules change, it’s usually to the disadvantage of a company.” Szancer says he’s looking for capital growth from investing in gold stocks, not dividends. “Investors should keep a close eye on their gold stocks as things can change pretty quickly,” he says. “I prefer to trade rather than buy and hold. It’s good to take a profit and buy on the dips.”
Gryphon Minerals is an exploration company, focusing on gold and base metals. Key gold projects include Mt Rankin and Radio in Western Australia. Szancer says Gryphon has a joint venture agreement granting it the right to acquire 90 per cent of the Banfora Gold project in West Africa. “The joint venture offers Gryphon a cost-effective entry into one of the world’s most prospective known gold provinces,” Szancer says.
AusQuest Limited is an exploration company, primarily searching for gold and nickel sulphide. Szancer says AusQuest is currently engaged in advanced discussions with an overseas company regarding a potential farm-in to an exploration project in West Africa. “The farm-in opportunity being assessed by AusQuest relates to a number of gold prospects that have been identified by surface sampling and which are ready for drill testing,” he says.
|Company||ASX Code||Share Price Close February 5, 2010|
|Azumah Resources||AZM||23.5 cents|
|Adamus Resources||ADU||42 cents|
|Gryphon Minerals||GRY||42.5 cents|
|AusQuest Limited||AQD||12.5 cents|
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