RE: The Daily Telegraph Hold Centamin19 Apr 2023 07:24
American gold miner Newmont is Among the few remaining UK gold miners, Chaarat Gold took a look at Shanta Gold last autumn, and although nothing came of that it did suggest that someone, somewhere thought there was value on offer.
Sceptics will dismiss this as an attempt to manufacture growth and momentum where little or none exists, since gold output grows only slowly and the all-in sustained cost (AISC) of producing gold is rising, in no small part due to surging energy and staff costs (trends that rather dent gold miners’ perceived status as a hedge against inflation).
Gold bugs, however, will argue that the proposed Newmont-Newcrest deal is simply further evidence that gold company executives see value that the stock market is overlooking.
The price of gold is up by 32pc since the start of 2020, but the NYSE Arca Gold Bugs index, known as the HUI, is up by just 12pc over the same period – and all of that gain (and more) from the index hails from the rally seen since Jan 1 this year. now getting busy again. It first bid for Australia’s Newcrest in February in an all-stock deal that valued the target at $17bn (£13.6bn). The would-be buyer has now increased its all-paper offer to $19.5bn. That price tag puts Newcrest on almost 1.7 times historic book, or net asset value. The major, US-listed producers trade on 1.5 times and London market’s gold diggers at 1.1 times – with Centamin, Resolute Mining and Shanta all trading at 1.2 times.
In many cases, the US-listed miners and producers do look to offer greater scale (and lower all-in sustained production costs) than their British-listed equivalents, but the relative valuations do look to at least partly reflect that and also the differing jurisdictions in which the miners operate.
Gold bugs will also argue that junior miners can offer greater leverage into any upside in gold prices. Shares in the aforementioned trio are putting on a welcome spurt, even though we have paper gains on only Shanta and losses on Centamin and Resolute Mining to show for patient support so far.
Even though the prevailing rate of inflation is slowing, at least in America, gold is having a good go at forging and sustaining a break above $2,000 an ounce. Perhaps oil’s fresh gains, in the wake of Opec’s unexpected production cut of early April, is stoking fears of a 1970s-style second wave of inflation (the first followed the 1973 Yom Kippur War and the second the deposition of the Shah of Iran in 1979, both of which caused crude prices to spike).
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