Life
    Money

    Gold is still the safest haven

    30 September 2017

    In times as alarming as these — with Kim Jong Un and Donald Trump waving nuclear weapons at each other — gold has traditionally been a refuge for investors. Nowadays there’s an alternative haven in the crypto-currencies that Freddy Gray writes about on the opposite page; their volatile performance this year has made gold look comparatively prosaic, up a mere 12 per cent so far. But there are good reasons to stay with the traditional insurance of gold rather than run with the Bitcoin pack— and for those looking for a better return than bullion itself, gold-mining shares are the way to go. What follows is a non-comprehensive list of major gold producers, as well as a few of the hundreds of smaller exploration and development ventures — and half a dozen ‘Buy’ recommendations. The table is ranked by scale of production but, as you can easily see, the valuations do not mirror this. A more complete comparison must take account of debt levels, reserves, ore processing costs and, of course, political risks. This really is a sector in which private investors need to do their own research and build up their general knowledge before diving in.

    The biggest producers are just too big for their shares to do much more that marginally outperform bullion itself. Of course, perception of South Africa’s ‘country risk’ might change for the better, which would make AngloGold Ashanti an obvious investment. The same would be true of Shanta in Tanzania. In the meantime, the likes of Canada’s Yamana and IAM Gold, and Australia’s Northern Star, will serve the risk-averse well over the long term. But be aware that their share prices have already improved this year, reflecting the rising bullion price.

    Risk and potential reward rises as we go down the list. The market is currently apprehensive about Russian production, hence lower valuations for Kinross, Polymetal and Petropavlosk. The latter produces much the same number of ounces as one of London’s favourites, Centamin, based in Egypt, which is valued more than seven times higher. But this has less to do with relative country risk than the fact that Petropavlosk is slowly paying off huge loans; when it has finished doing so, this poor swan could fly — and even approach the valuation of debt-free Centamin.

    As every seasoned investor knows, the fun and games in the mining sector are to be found in smaller exploration ventures — and the key is to make sure you join the fun when the company has plenty of money to carry out its exploration drilling. But if the company gets lucky, the investor will be confronted with a double-or-quits dilemma: more financing will be needed to reach the point at which reserves are defined, and more still when production is about to commence. Centamin was a good example: the investor who held his nerve over four years as production came closer was ultimately rewarded four times over.

    I’m hoping for a similar experience, or even better, with Kenadyr and Georgian, two of the more interesting smaller explorers. I hold the stocks marked with a * — not a conservative portfolio, you will note!

     

    NEWMONT
    PRICE (as at 22 Sept) $37.89
    CAPITALISATION £million 15,976
    PRODUCTION million ounces P.A 5.0
    MAIN OPERATIONS US, Africa, Australia, S.America
    BUY? NO
    ANGLOGOLD ASHANTI
    PRICE (as at 22 Sept) $9.47
    CAPITALISATION £million 2,844
    PRODUCTION million ounces P.A 3.75
    MAIN OPERATIONS S.Africa, US, West Africa
    BUY? NO
    GOLDCORP
    PRICE (as at 22 Sept) $12.87
    CAPITALISATION £million 8,008
    PRODUCTION million ounces P.A 3.0
    MAIN OPERATIONS Canada, US, S.America
    BUY? NO
    KINROSS
    PRICE (as at 22 Sept) C$5.23
    CAPITALISATION £million 3,905
    PRODUCTION million ounces P.A 2.5
    MAIN OPERATIONS US, Russia, Africa
    BUY? YES
    NEWCREST
    PRICE (as at 22 Sept) A$21.67
    CAPITALISATION £million 9,836
    PRODUCTION million ounces P.A 2.4
    MAIN OPERATIONS Australia, PNG, Indonesia
    BUY? NO
    AGNICO EAGLE
    PRICE (as at 22 Sept) C$57.67
    CAPITALISATION £million 8,012
    PRODUCTION million ounces P.A 1.6
    MAIN OPERATIONS Canada, Finland, Mexico
    BUY? NO
    POLYMETAL
    PRICE (as at 22 Sept) £8.26
    CAPITALISATION £million 3,620
    PRODUCTION million ounces P.A 1.4
    MAIN OPERATIONS Russia, Kazakhstan, Armenia
    BUY? NO
    RAND MINES
    PRICE (as at 22 Sept) £74
    CAPITALISATION £million 7,030
    PRODUCTION million ounces P.A 1.25
    MAIN OPERATIONS Mali, Congo
    BUY? NO
    YAMANA GOLD
    PRICE (as at 22 Sept) C$3.37
    CAPITALISATION £million 1,913
    PRODUCTION million ounces P.A 0.94
    MAIN OPERATIONS Canada, S.America
    BUY? NO
    IAM GOLD
    PRICE (as at 22 Sept) C$7.80
    CAPITALISATION £million 2,172
    PRODUCTION million ounces P.A 0.88
    MAIN OPERATIONS Canada, West Africa
    BUY? NO
    CENTERRA GOLD
    PRICE (as at 22 Sept) C$8.50
    CAPITALISATION £million 1,586
    PRODUCTION million ounces P.A 0.80
    MAIN OPERATIONS Canada, Kyrgyzstan
    BUY? YES
    NORTHERN STAR
    PRICE (as at 22 Sept) A$4.92
    CAPITALISATION £million 1,782
    PRODUCTION million ounces P.A 0.55
    MAIN OPERATIONS Australia
    BUY? NO
    PETROPAVLOSK*
    PRICE (as at 22 Sept) £0.073
    CAPITALISATION £million 243
    PRODUCTION million ounces P.A 0.48
    MAIN OPERATIONS Russia
    BUY? YES
    CENTAMIN
    PRICE (as at 22 Sept) £1.56
    CAPITALISATION £million 1,600
    PRODUCTION million ounces P.A 0.47
    MAIN OPERATIONS Egypt
    BUY? YES
    ROYAL GOLD
    PRICE (as at 22 Sept) $94
    CAPITALISATION £million 3,035
    PRODUCTION million ounces P.A 0.35
    MAIN OPERATIONS S.America, Canada
    BUY? NO
    ELDORADO GOLD
    PRICE (as at 22 Sept) C$2.56
    CAPITALISATION £million 1,330
    PRODUCTION million ounces P.A 0.30
    MAIN OPERATIONS Europe, S.America
    BUY? NO
    HIGHLND GOLD
    PRICE (as at 22 Sept) £1.63
    CAPITALISATION £million 476
    PRODUCTION million ounces P.A 0.26
    MAIN OPERATIONS Russia
    BUY? NO
    LEAGOLD*
    PRICE (as at 22 Sept) C$3.20
    CAPITALISATION £million 286
    PRODUCTION million ounces P.A 0.23
    MAIN OPERATIONS Mexico
    BUY? YES
    HUMMINGBIRD
    PRICE (as at 22 Sept) £0.35
    CAPITALISATION £million 115
    PRODUCTION million ounces P.A 0.13
    MAIN OPERATIONS Mali
    BUY? NO
    SHANTA
    PRICE (as at 22 Sept) £0.035
    CAPITALISATION £million 28
    PRODUCTION million ounces P.A 0.085
    MAIN OPERATIONS Tanzania
    BUY? NO
    RYE PATCH
    PRICE (as at 22 Sept) C$0.20
    CAPITALISATION £million 52
    PRODUCTION million ounces P.A 0.075
    MAIN OPERATIONS USA
    BUY? NO
    OROSUR*
    PRICE (as at 22 Sept) £0.18
    CAPITALISATION £million 21
    PRODUCTION million ounces P.A 0.035
    MAIN OPERATIONS S.America
    BUY? YES
    GEORGIAN MINING*
    PRICE (as at 22 Sept) £0.20
    CAPITALISATION £million 24
    PRODUCTION million ounces P.A Exploring
    MAIN OPERATIONS Georgia
    BUY? NO
    KENADYR MINING*
    PRICE (as at 22 Sept) C$0.25
    CAPITALISATION £million 11
    PRODUCTION million ounces P.A Exploring
    MAIN OPERATIONS Kyrgystan
    BUY? NO