Thursday, 13 February 2014

Gold stocks - getting more and more interesting

A couple of days ago I posted an article which talked about some growing positives for gold sourced from both Chinese fundamentals as well as technical considerations. 

These positives continued today - and I am not just talking about the creeping forward gold price.  Look how - post numbers - both Barrick Gold and Goldcorp have shrugged off mixed comments to (at the time of writing) be up 2.5-4% on the day.  A share price rally off mixed news is a sign that a lot is priced in.

I am a shareholder in neither (Randgold remains my favoured large cap gold play - at the start of this month, it too responded very positively to its strong results, see link here) but as large, and well-known North American plays, they are important to sector sentiment. 

At face value, Barrick Gold - for 2014 - are guiding for lower production and higher all-in sustaining costs for both their gold and copper operations (albeit these costs are well below the current commodity prices). 
Additionally, the company reduced its reserves by a material 26%, half of which due to a decrease in the gold price assumption to US$1100 an ounce:
And then, for a final indignity, the company's actual results showed a near US$3bn loss due to after-tax impairment charges.
But still the shares are up and - for the US Dollar quote - close to re-attaining the psychologically important US$20 level.  A lot is priced in and sentiment is improving

And it is a similar story with Goldcorp, who posted a US$1bn+ Q4 loss due to impairment and a tax charge related to their operations in Mexico, as well as posting a 15% fall in reserves.  As with Barrick Gold above, this was mainly due to lower gold price assumptions. 

The better news was a 13-18% anticipated increase in gold production in 2014 year-on-year and this is being undertaken at an attractive cost level as all-in sustaining costs are expected to decrease to US$950-1000 per ounce of gold.  Still, on balance, the news is mixed - but still the share has risen sharply year-to-date. 

Goldcorp has also made an attempt at gold sector M&A earlier this year (link here) and even though this bid has been suspended for technical reasons, it has proved to be a signal over the last four weeks of an improvement in sentiment towards the sector.   
I remain long of the sector. 



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