Gold companies exhibit confidence in the yellow metal
It is certainly not a secret that global markets are currently in turmoil, and that conditions are fertile for the gold price to ramp higher in the coming months. In light of this development, we have chosen to focus on some of the latest developments regarding companies involved in production of the yellow metal.
First on the agenda is the Canadian gold producer IamGold Corp., which has entered into an agreement to sell $200m worth of common shares to a group of underwriters led by TD Securities Inc., National Bank Financial Inc. and Morgan Stanley Canada Ltd.
The company reportedly plans to use the net proceeds of the offering to strengthen its balance sheet, by reducing indebtedness and to fund future growth, which includes the expansion of the Sadiola mine in Mali, a joint venture between IamGold (41%), operator AngloGold Ashanti (41%) and the Malian government (18%).
Indeed this is a bold move by IamGold and we should perhaps take this as a sign of confidence that IamGold believes that the prospects for gold producers are solid and subsequently intend to capitalise on this.
The trend is echoed in Southern Africa, where Zimbabwe’s Metallon has reaffirmed its production target of 120,000oz for 2016, having produced only 43,238oz in the first half and 97,000oz in 2015. Also in this vein, Sibanye Gold is experiencing a surge in its share price. Sibanye and DRDGold are speculated to be in talks regarding some form of co-operation to treat the dumps on the West Rand which shows that investors are still seeing some value in South African gold producers.
In addition to this, Chief Executive Gary Goldberg of Newmont Mining (NEM) confirmed that it would boost its quarterly dividend later this year. For Newmont, a turning point is approaching with the miner expecting to reach its internal debt targets two years ahead of schedule. When questioned as to why the company’s internal debt targets had been reduced so rapidly, Goldberg cited better-than-anticipated gold prices as the fundamental reason.
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The companies’ beliefs are perhaps justified when seeing that investors’ appetite for gold has not yet shown any signs of abating. The World Gold Council reported a record investment in the first half of 2016. Demand by investors rose to a record of 1,064 tons during the first six months of 2016, representing a 16 percent increase compared to the first half of 2009 during the global financial crisis.
Overall, global gold demand reached 1,050 tonnes in the second quarter of 2016, down from the first quarter, but an improvement of 15% when compared to the same period last year. While other sectors including central bank purchases declined, investment demand was 141% higher than 2Q15!
In 2016, ETFs and similar products increased to 237 tonnes of inflows worth $9.6 billion in Q2 and 580 tonnes or $23.4 billion for the first half, more than reversing the cumulative outflows from 2014 and 2015.
The trend of increased output is something we expect to see more of in the coming months leading up to the US elections and post that period.
Lara Smith has spent over a decade covering commodity markets. She started her career as a buyside analyst in South Africa where she covered soft ... <Read more about Lara Smith>