Gold Executives Bullish on the Yellow Metal
Tracy Sherlock |Vancouver Sun |
More than 80 per cent of gold executives expect a rise in the price of gold in 2013, the PwC Gold Price Report released Thursday found.
Lofty gold prices since 2000 add weight to the gold executives’ optimism, said Michael Cinnamond, partner and leader of the B.C. mining practice at PricewaterhouseCoopers.
“Gold as a metal isn’t actually used for that many things. Gold is primarily jewelry or a store of wealth. I think that’s why they’re bullish on gold, with the uncertainties that exist in the world on the economic side and uncertainty over what’s going to happen in Europe,” Cinnamond said. “If you look at gold price levels … they’ve been at the $1,600, $1,700 mark for a while now, so I think the higher prices bears that out. If you went back to the late ‘90s, I think gold was closer to the $300 mark. It has been up to six times that.”
Underpinning higher gold prices has been central bank buying, a reversal from the last two decades in which nations were net sellers of gold, according to the report.
Gold is currently trading at about $1,650 US an ounce, down from more than $1,700 at the beginning of December.
Coupled with high prices over the past several years, there has been a shift in focus by gold executives to watch their companies’ cost of production, Cinnamond said.
“It’s not growth at all costs anymore; they’re being more careful about what they’re acquiring,” Cinnamond said. “Some of the bigger gold companies have pulled back in developing some of their very expensive projects and refocused on maximizing and optimizing the existing projects they have.”
B.C. does not have any major primary gold mines, but the province does have copper-gold mines that will benefit from a high price for gold, Cinnamond said.
An analysis included in the report of the 46 largest TSX-listed gold mining companies shows that more than 20 of these companies have cash reserves greater than $500 million.
Cinnamond said those cash reserves, coupled with the shortage of available cash for smaller junior gold companies, will mean the senior mining companies will be looking for juniors to buy out.
“A lot of (B.C. juniors) are the smaller companies that are struggling for cash, so they are more likely to be targets, which is good, as long as their project is sufficiently large or capable of being developed in the near enough term that a larger company is interested,” Cinnamond said.
“If you’re a smaller company and you haven’t got a project that a larger company is interested in, it’s likely you’re going to run out of cash very soon. That’s the problem that the smaller companies in B.C. are facing.”
As smaller companies are having difficulty raising cash, they are looking to less traditional means of financing, Cinnamond added.
Metal streaming — where a company offers to buy a percentage of future output — is one of those means, and B.C. has two precious metals streaming companies: Silver Wheaton and Sandstorm Gold.
“It’s a relatively new phenomenon in the mining world, but there are more and more companies doing this because they are not able to access the traditional sources of funding like equity or debt,” Cinnamond said. “From the streaming companies’ point of view, it’s a perfect storm because the commodity prices are so high and companies find it difficult to find other sources of funding. They’ve got all kinds of projects being presented to them and they can take their pick. The streaming companies are doing very well as a result.”
The PwC report also found that Canada had the most gold transaction activity in 2012, and that four of the top deals saw gold juniors acquired by Chinese buyers.