Hi Nick,
A few questions in here but it’s certainly an interesting “Hot” topic today with spot gold having traded above $US4050 / $A6150 on Wednesday. We are bullish towards gold medium term making your questions very valid, even though we are a little cautious in the short term. We can go back and look at the playbooks from coal and iron ore stocks who made huge profits in recent years as their respective commodities surged higher, until one day they proved again that commodities are cyclical markets:
- We anticipate a mixture of more exploration expenditure as previously uneconomic projects now make sense financially, buybacks and growing dividends.
In terms of hedging, which can be a two-edged sword, it’s a mixed bag with many such as Evolution Mining (EVN), Westgold (WGX) Newmont (NEM) and now Regis Resources (RRL) largely unhedged. Similarly, Northern Star (NST) have ceased their forward hedging policy recently, in order to take advantage of rising gold prices.
- At this stage NST still has ~20% of forward production hedged and EVN ~6%.
Importantly hedging is a lever that miners can pull when they see fit but with gold rising exponentially it’s not surprising that many have eased off, a good reason gold could drop a few hundred dollars quickly!
Consolidation works only when assets work together. Consolidation simply to get bigger, is not a good strategy. We will see more of it, but in our view, gold companies are generally better off focussing on production efficiencies, driving down costs, and delivering value to shareholders in that way, rather than focussing heavily on M&A.
