With gold prices at record levels, the September quarter will post the highest average quarterly gold price ever, and “significant margin expansion,” said Neil Adshead, consultant analyst at the Commodities Discovery Fund.
This week Kitco correspondent Paul Harris recorded Digging Deep with Adshead.
“It'll be great to see two or three gold mining companies far exceed the expectations of what the sell-side analysts are projecting. There'll be some bumper profits and that will definitely draw some investors into the sector. Normally, during the happy days, the maximum margins you see are in the 40% range. If we start to see a few of the higher-grade producers generating +50% margins, that would be spectacular,” said Adshead.
Investors are starting to warm to the gold equities again with the GDX index fund up 35% year-to-date. However, with most companies still trading at less than 1x their net asset value (NAV), Adshead believes there is more share price growth to come.
“When I first started as an investment analyst, some of the hot producers of the day were trading at 2.5x NAV. To see those multiples again would be remarkable. There is certainly a lot of room for some of these producers to trade up,” said Adshead.
Adshead also spoke of he would like to see gold companies allocate the additional funds they are earning to mine expansions, building new mines and acquiring new projects to build.
While a number of large financings have been announced, Adshead said it is still a selective market. The sector is not yet frothy enough to be writing checks carte blanche to juniors.
“We are actually in a pretty good market for financing, but it is not like every junior can raise whatever dollars they want," said Adshead. "I quite like that as in a peak bull market is when you also get peak capital misallocation: when a lot of companies get money that shouldn't be getting money in the first place, or companies take far too much money than what they really need and end up wasting it,” he said.
Adshead also commented on the Guyana Shield as a hot exploration region, Iceberg’s shorting report on Newfound Gold’s Queensway orogenic gold deposit in Newfoundland, Canada, NGEx Minerals plan for its largest ever drill program at its Lunawasi copper discovery in San Juan, Argentina, a new president in Mexico and the outlook for uranium.
Digging Deep is brought to you by Revival Gold. Revival Gold is one of the largest, pure gold, mine developers in the United States. The Company is advancing engineering and economic studies on the Mercur Gold Project in Utah and mine permitting preparations and ongoing exploration at the Beartrack-Arnett Gold Project located in Idaho. Revival Gold is listed on the TSX Venture Exchange under the ticker symbol “RVG” and trades on the OTCQX Market under the ticker symbol “RVLGF”. The Company is headquartered in Toronto, Canada, with its exploration and development office located in Salmon, Idaho.
Disclaimer: The views expressed in this podcast are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this podcast do not accept culpability for losses and/ or damages arising from the use of this publication.
