The Gold price and the share prices of gold miners have been
under heavy pressure, with miners in a deep, deep funk. Let's
[caption id="attachment_73301" align="alignright" width="255"
caption="The South Deep Gold Mine is a key asset for Gold Fields
and the flagship growth project in South Africa"]
Gold prices have lost their uptrend on two primary drivers:
- Inflation effects of QE began to be in question
- Sustainable growth globally meant equities were investible
again and risk on means risk off gold
The Gold price is approaching 3 Standard Deviation move of the
100 day move average of approximately $1,577, which traditionally
has served as a support. Price is setting up for a trading
buy at a minimum.
Gold equities have been caught in this price move, but are also
suffering from a more fundamental dynamic that comes from a lower
Many gold projects are unjustifiable at lower spot prices.
Cheaper company multiples also mean that miners have less access to
capital to fund their growth.
There is greater risks than ever before in the gold mining space
due to political factors such as greater resource nationalism in
Africa , Asia, Russia and because the grade requirements have
Thus, many gold miners are transitioning from pure growth
production/earnings to lower multiple yield plays.
What we have been seeing from players like Goldfields (GFI,
quote), is that they are spinning off more speculative, higher cost
assets and maintaining cash flow generative, lower risk
assets in their primary portfolio.
Last week they announced a spinoff from GFI of Sibanye gold,
which is a higher growth portfolio, but with higher
Other miners are following a similar strategy and this is
leading to a place where investors are making a very different call
when buying many gold miners today than they were last year or in
the last decade.
How long will this transition take? ...it won't be a few
months, but it will transform the industry.
: Country risks (political) and global macro dysfunction mean gold
prices stay high. Investors need to begin to price in
additional execution risks as well as asset risks.
Investors should reward more conservative players with projects
that in friendly places like Australia, Canada and the United
Investors also need to look at companies who have already
undergone significant restructuring and are now focused on finally
pouring gold, or finally generating free cash flow, or players who
have sold or will sell off less stable assets.
Conversely, stay away from companies with higher cash costs,
riskier geographies, and impending feasibility tests that will make
or break the valuation.