The Alain Review: Portfolio manager and head of Mining from Finance SA Alain Corbani wraps up the the world of commodities for October….
During the month of October, gold was up 2.33% and closed at US$1214.95 an ounce. Silver climbed 0.24% and closed at US$14,34 an ounce. Platinum rose 2.33% and closed at US$834 an ounce. Palladium was down 1.1% and closed at US$1082 an ounce. The FTSE Gold Mines index was up 6.17% in Euros; the S&P / TSX Gold Index was up 4.69%.
As of October 30, 2018, gold net speculative positions stood at 13.2 million ounces, resulting from a significant coverage of gold short futures positions (as expected and highlighted last month). The US Dollar index was up 1.9% at 97.12 while real interest rates climbed 14 basis points.
By the end of the month of October, most mining companies had published their quarterly financial results. There was no significant surprise as the market had already anticipated the contraction in the operating margins because of a lower gold price ($1214 an ounce on average in the third quarter of 2018 vs. $1250 the prior quarter). We will however note that this $1210 level is a strategic number as it is also the breakeven point for this industry and therefore a fundamental support.
As it is well understood that productions costs will NOT decline from their present levels, mining companies dedicate their efforts towards strategic reorganizations/restructurings.
To mention a few:
- Centerra Gold Inc. completed the sale of its Mongolian business unit for net proceeds of US$35 million allowing the management to “focus on the Company’s development projects in Canada and Turkey” while operating its two flagship assets, the Kumtor Mine in the Kyrgyz Republic and the Mount Milligan Mine in British Columbia, Canada.
- Coeur Mining, Inc. acquired a property package adjacent to its Rochester operation from Alio Gold Inc. for $19 million in the form of common shares. The most advanced asset is the Lincoln Hill project adjacent to Coeur’s Rochester mine in northern Nevada with a historical measured and indicated resource totaling 364,000 ounces of gold and 10.2 million ounces of silver, providing significant operational synergies through the sourcing of higher-grade as the Lincoln Hill gold average resource grade is more than four-times higher than Rochester’s current grade.
- IAMGOLD Corporation managed to publish a Feasibility Study for its Boto gold project in Senegal that significantly improved the economics reported from the February 2018 pre-feasibility Study with a 30% increase in proven and probable reserves and an after-tax internal rate of return of 23%. B2Gold Corp. announced positive results of an expansion study for its El Limon mine in Nicaragua. With a projected annual processing rate increase to 600,000 tpa, the life of mine is estimated to be extended over 10 years with an increase in average annual gold production to approximately 75,000 ounces per year generating an after-tax internal rate of return of approximately 28%.
- Teranga Gold Corporation acquired the remaining 49% interest in the Golden Hill and Gourma projects from Boss Resources Limited for a very reasonable AUD10 million. Teranga now owns a 100% interest in each of the Golden Hill and Gourma projects, located in Burkina Faso, West Africa which could very well end up being the company’s next producing mine.
The closer we get to the neutral policy stance (recurring references of the FED, even though the language of the US central bank chairmen may defer over time), the more a favorable environment for gold settles in, in a context of persistent inflation pressures and a decelerating US economy growth rate. This is the fundamental key element that will support the rise of the yellow metal in the coming months.
Alain Corbani
Head of Mining & Portfolio Manager
Finance SA, Paris France
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