Money to be made for canny investors in the gold sector
The Gold Price has slid 33% so how do you make money in the Gold Sector? Look to the ASX Listed Gold Producers.
The companies that have re-invented themselves have doubled in price.
The ability for gold miners to reinvent themselves has never been more important than in the wake of gold’s 33 per cent slide since its high of US$1920 an ounce in September 2011.
But as an investor, if you can hook onto those that are, there is some big money to be made, with stocks in the sector more than doubling in recent months, as these companies start producing.
Gold is trading at about $US1300 an ounce, having gone below $US1200 late last year. Mineral exploration across the board is definitely on the wane. When did you last year of a big discovery in the realms of Sirius’s large scale nickel copper deposit known as “Nova” in Western Australia in mid-July 2012?
Producers that were reliant on bulk tonnages but whose costs were above average have fallen by the wayside. Names like Apex Minerals, St Barbara Mines and Newcrest come to mind as companies which have struggled to readjust to the lower gold price environment.
Small Cap Aurelia Metals (AMI) has doubled
Yet some are managing to remodel themselves, which is why we are having success. The gold and base metals producer, Aurelia Metals (AMI) has almost doubled since we tipped it eight months ago. This company has been climbing off the back of its positive exploration results at its base metal focussed Nymagee project near Cobar, in Western New South Wales.
As we envisaged, Aurelia has also re-rated because its production has commenced out of its Hera project, which it spent $100 million developing. The facility is close by to Nymagee and has a capacity of 400,000 tonnes and Hera is forecast to produce 30,000 ounces of gold a year, plus 20,000 tonnes of lead and zinc.
Gryphon Minerals (GRY): radically reducing it's mining costs
Gold developers have been hit even harder as they struggle to achieve finance of any kind to turn themselves into a producer like Aurelia. One company which has definitely had a tough time is Gryphon Minerals (GRY), which is developing the Banfora mine in Burkina Faso, West Africa.
Its stock climbed above $2 in late 2011 which reflected its giant deposit which had a resource of some 4.5 million ounces. In the past year or so, its stock has traded between 12 cents and 25 cents. This is chiefly the result of the lower gold price, which has lowered the project’s reserves, or the amount of gold it can economically extract. This currently sits at 800,000 ounces.
On this front, Gryphon’s stock has bounced almost 60 per cent to 19 cents in the past month which shows that investors are warming to its strategy to radically reduce its mining costs.
Instead of the $200 million plus cost of a carbon-in-leach (CIL) process, Gryphon intends to use the heap leach process, which extracts less gold, but costs in the region of $80 million.
The cost is close to its current market cap, and the company has about $35 million in the bank and has secured project finance from Macquarie Bank worth $60 million.
“This is the best funding position of any of the 20 companies with development projects in the gold space and importantly for investors, Gryphon won’t need a dilutive share issue,” says Canaccord Genuity’s analyst Reg Spencer, whose price target is 32 cents.
If Gryphon does become a producer, we have no doubt that Spencer will re-adjust his price target upwards.
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