Five Charts Show Why George Soros Is Investing in Gold Miningby
Shares of world’s biggest bullion producers doubled this year
Gold price surged, while miners reduced costs and trimmed debt
Gold mining equities have become the darlings of the market, luring billionaire George Soros to buy a $264 million stake in Barrick Gold Corp. Bloomberg’s index of 14 major bullion miners doubled this year after plunging 76 percent in the previous five years.
These five charts show why:
Stocks are leveraged to the gold price. Bullion surged 20 percent this year, powering to a 15-month high in early May, as traders scaled back their expectations for the pace of U.S. interest-rate increases and the dollar weakened. Soros acquired 1.7 percent of the world’s biggest producer Barrick in the first quarter, making it the firm’s largest U.S.-listed holding.
While currencies in the top producing nations have strengthened against the dollar in recent months, they’re still much weaker than two years ago. That’s good for miners outside the U.S., who pay costs in local currencies but earn revenue in dollars. Russia’s ruble has dropped about 45 percent and the South African rand is down almost a third since mid-2014.
Along with beneficial exchange rates, record cuts to capital expenditure and more efficient production have helped the largest miners reduce costs. All-in sustaining cash costs, the amount a company spends producing an ounce of gold, excluding exploration and future projects, fell about 34 percent since 2012, according to Bloomberg Intelligence.
As gold rallied during a decade-long bull run, miners borrowed record amounts to invest in future output, only to see prices then plunge as much as 46 percent by late 2015. They’ve now started reducing debt, mostly through asset sales and cost savings.
The biggest producers have been selling and writing down the value of weaker operations, meaning that their average reserve grades, or the amount of gold in each metric ton of ore, increased about a third last year. Those buying lower-quality assets have been able to pick them up at an attractive price.