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Gold miners are expanding their assets and upgrading production as the price of the yellow metal stays in bull territory on the back of global economic volatility from the Russia-Ukraine crisis, rising consumer prices and inflation.
The price of the precious commodity, widely seen as a haven for investors to store wealth during times of political and economic uncertainty, peaked above $US2040 ($3039) an ounce last month before settling to about $US1940 this month.
Stuart Tonkin, chief executive of Northern Star Resources.Credit: Carla Gottgens
“Gold has been in a bull market for over seven years, rising 87 per cent from its secular low in December 2015,” VanEck gold strategist Joe Foster said.
“However, unlike the steady and predictable bull market of the 2000s, this bull moves up, down and sideways in fits and turns that makes price targeting next to impossible.”
Foster believes gold could soon reach $US2075 and maintain a higher floor price, an upward shift he attributes to escalating geopolitical tensions, global financial risks, the possibility of a US recession and emerging market countries adding to their gold reserves to reduce their exposure to the US dollar.
While the metal’s erratic movement is keeping investors on their toes, Australia’s miners are benefiting from its lustre. Northern Star Resources said last week it will invest $1.5 billion over three years to expand its mill processing capacity at its Kalgoorlie mine.
‘Gold has been in a bull market for over seven years, rising 87 per cent from its secular low in December 2015.’
The expansion, funded from cash, will increase Northern Star’s Kalgoorlie ore throughput from 13 million tonnes to 27 million tonnes a year and deliver a sustained lower cost base and a significant increase in free cash flow, managing director and chief executive Stuart Tonkin said.
Northern Star will vault to become Australia’s largest ASX-listed gold producer once Newcrest Mining disappears from the local bourse following its buyout by American mining giant Newmont. The Perth-based miner has market capitalisation of $14.5 billion.
Tonkin said gold companies were investing or positioning themselves for potential consolidation, but high gold prices are not the primary driver of activity. “It’s about how do they insulate or protect, be a bit more defensive [in the face of] cost pressures, and make sure they can operate throughout the cycles,” he said.
“We have three key production centres. We’re just investing in Kalgoorlie, our most significant one, to grow that. We certainly have interest to get a fourth production centre, but we stick to the discipline of capital investment. We’re very patient in that regard.”
Junior gold producer De Grey said last Thursday it had tied up a deal with Novo Resources Corp to significantly expand the exploration footprint next to its Mallina Gold project in Western Australia’s Pilbara region.
“By expanding our exploration footprint in the region by 70 per cent, we increase the potential to discover new gold resources capable of being processed at Hemi in the future,” De Grey’s managing director, Glenn Jardine, said.
Analysts at finance house Citi said the macro environment was skewed positively towards gold investment for the next 12 months. “We think trading could hit $US2200 an ounce into year-end 2023 or the first half of 2024, and average north of $US2000 an ounce next year,” they said.
”In our view, gold remains a viable macro portfolio tail hedge – both historically and during the current post-pandemic era. This is despite a hawkish Fed regime. We believe bullish bullion sector tailwinds will re-emerge before end-2023,” Citi said in a note to clients.
Tonkin said he doesn’t “typically try to guess gold price”.
“There are options for us in all those environments to capitalise on it, but we certainly don’t see global instability easing with inflation pressures and the potential for the Ukraine-Russia situation to continue. That usually holds the gold price up for longer or higher. We certainly don’t bank our business on it [the gold price] going up, down or sideways, but we have ability to flex within it.”
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