SYDNEY – Australian gold miners brace for 2021 prosperity as high prices for the yellow metal boost profits, prompting a search for a resource that now looks much more promising than it did a year or two ago.
Gold hit a record $ 2,067 an ounce in August. Even though prices have fallen, they remain above $ 1,800 as investors cling to safe-haven assets amid the coronavirus pandemic and the ensuing global economic downturn. A weak US dollar and low global interest rates also helped gold prices by minimizing the losses on investing in the metal.
Big gold producers and so-called junior explorers have responded by rushing into capital markets, seeking funds to restart closed mines or explore and develop new projects.
“There is increasing interest in the gold sector as well as an increased desire to fund early stage exploration, which we haven’t seen in a long time,” said Anna Nahajski-Staples, executive director at Moneghetti Minerals, who plans to drill two greenfield exploration projects in the state of Nevada. US and others in Western Australia.
Moneghetti hopes to raise $ 8 million to $ 10 million in an initial public offering on the ASX, the Australian stock exchange, in mid-2021.
Other gold juniors who have recently raised funds for exploration and development in Australia include North Stawell Minerals, Bardoc Gold and DevEx Resources.
“Interest really got down the food chain. Previously it was a market where investor interest was around short-term production or already producing mines, to reduce risk as much as possible,” Nahajski-Staples added. “Now, with such a large margin, they can see the early stages and take a higher risk.”
Even the old gold mines that had stopped producing years ago were resuming production. These include the Katanning project in Western Australia, the Horizon Gold’s Gum Creek project and the Morningstar AuStar Gold mine in Victoria.
Strong investor interest in gold has also enabled fundraising at ASX by companies focused on foreign assets, such as Megado Gold, which is drilling in Ethiopia; Mithril Resources, which is developing a gold-silver project in Mexico; and Sihayo Gold, who explored North Sumatra, Indonesia.
The gold sector accounts for the largest proportion of funds raised among all resource companies at ASX in 2020.
Gold companies raised Australian $ 761 million in the September quarter, and this was followed by another AU $ 812 million in October and November. At least a dozen junior explorers have also entered the market with initial public offerings in the past two months to tie up funding for drilling on prospective projects.
“We see the need for more capital – especially in small to midsize companies – as there are more companies exploring because it is a profitable price to do,” said Romano Sala Tenna, portfolio manager at Katana Asset Management Perth.
Indeed, gold exploration spending touched a record AU $ 1.2 billion in the 12 months to October 2020, a government review found, accounting for 42% of all mineral exploration spending in Australia.
A $ 3.9 billion gold project was “underway” during that period and 17 others reached the “eligibility” stage. If all the projects were realized over time, Australian gold production would increase by a third, he said.
Heavy gold prices and production have been booming for Australian government coffers, with official forecasts predicting that gold will replace coal to become the country’s third largest export after iron ore and gas in the financial year ending June 2021.
Australia produced 315 metric tons of gold in 2019, accounting for about 10% of world production, second only to China.
The continent has nearly 19% of the world’s gold reserves – the largest of any country. But most of them are located in remote locations with limited infrastructure. Rising prices, coupled with technological improvements, have now made it easier to raise money for developing low-class assets or those in difficult locations.
High prices have also encouraged deal-making in this sector. Northern Star Resources and Saracen Minerals, Australia’s second and fourth largest gold producers by market value, agreed to join in October, while smaller players Dacian Gold and NTM Gold agreed to join in November to form a mid-range gold producer.
“I’m pretty sure we’ll see more gold mergers and acquisitions happen over the next year,” said Sherif Andrawes, head of natural resources at accounting and consulting firm BDO.
“Gold companies, when they come together, can actually generate quite a lot of synergies. And gold M&A makes a lot of sense,” said Andrawes. “[It] is about getting bigger, getting access to indices, and getting the attention of gold ETFs. “