Gold Miners Justify Surging Shares as Better Results Roll Inby
Gold stocks have more than doubled this year as bullion gained
Acacia could beat output target; AngloGold returns to profit
Gold miners seem to be justifying their barnstorming performance this year.
Bullion producers are among the best-performing equities, with the BI Global Senior Gold Valuation Peers index more than doubling in 2016 as the metal rallied to a two-year high. They’ve also benefited from a lot of self help, as payback from years of cost-cutting and improving operations start to materialize.
Acacia Mining Plc is the latest example. The London-based company had a torrid time since listing in the city in 2010 with a series of project setbacks and missed production targets. Under new Chief Executive Officer Brad Gordon, it has sought to turnaround its fortunes and focus on cutting costs and improving its flagship Bulyanhulu mine in Tanzania.
The company said Friday that full-year production may exceed its target, raised its interim dividend by 43 percent and expects costs to fall further. The shares jumped as much as 8.7 percent and have more tripled this year.
“We’re very happy with the direction of the business,” Gordon said in an interview. “If you go back to where we were a few years ago the business has been transformed. We’ve come a long way.”
Things are also looking better for AngloGold Ashanti Ltd. Africa’s top bullion producer today said it returned to profit in the first half thanks to higher prices, focusing on costs and weaker currencies in countries it operates in. The shares rose as much as 3.4 percent and have almost tripled this year.
Gold has jumped 25 percent this year as the Federal Reserve scaled back expectations for interest-rates increases and demand for a haven rose, especially due to uncertainty linked to the U.K.’s vote to leave the European Union. With shares of producers including Barrick Gold Corp. and Newmont Mining Corp. surging, that’s attracted more investors back to the industry.
“Most of those one-on-one meetings are with generalist funds and that’s a very different position from where we a year ago,” Gordon said.
It’s been a fast turnaround for gold miners. Just eight months ago the metal was languishing below $1,050 an ounce at a five-year low, hurting profits and stressing balance sheets in an industry where many needed about $1,200 to break even. Companies had racked up record debts in the dash to grow during a decade-long bull run and some new mines then struggled to make a profit.
With gold now back above $1,300, the challenge for mining companies is to not make the same mistake again.
“Time will tell,” Gordon said. “I’m not that confident in saying the industry has learned its lesson.”