COMPANY and OPERATIONS
Some may be familiar with this company from its share price performance, but for those unfamiliar, it is the second-largest gold miner in Russia. It used to be called Peter Hambro Mining PLC (yes, he is the chairman of the company and co-founded the company, along with Pavel Maslovskiy).
The company’s operations are based in the Amur Region in the Far East of Russia (very conveniently next to China, who is the biggest consumer of gold right now).
THE MACRO-VIEW IN RESEARCHING A GOLD COMPANY (very important)
Its annual report is long-winded, filled with confusing jargon. However, analysing a gold company isn’t too hard (if you know the economics), as it only requires two things:
- 1. The price of gold, exchange in the open market (found in Kitco website or from Google), and
- 2. More importantly INFLATION (especially the US and EU), because they make half the world GDP.
Why these two things?
Take inflation, if it’s high, then the price of goods and services become expensive, therefore it requires more money to maintain current standard of living.
Okay, so how does this affect the gold price?
Paper money is almost infinite because Central Banks around the world are pursuing inflationary policies. A higher inflation rate means goods and services become expensive, and requires more money to service it, hence why money loses value over a long period.
Gold, on the other hand is finite, you can’t create gold out of thin air. But like everything else it is subject to supply and demand, however, the economics of gold and money is really boring.
Just keep in mind, one thing, if ‘rate of inflation’ (especially in the US and EU) increases, expect the gold price to increase and vice-versa.
THE MICRO-VIEW IN RESEARCHING A GOLD COMPANY (also very important)
When researching a gold miner, these following micro-factors will determine their success, or jolly failure. Keep in mind these things:
- 1. Production per annum (gives you an idea on current capacity);
- 2. Mineral resources in reserves (look for Ore Reserves);
- 3. The price of gold per oz. (it means life and death of a gold miner);
- 4. The all-in-costs of production (total cost that includes capital investment to keep operations running smoothly), if company only includes total cash cost (it means just ONLY the cost of operations);
- 5. The grade of gold in the deposit (low grade deposits require more digging, therefore increase costs);
- 6. Annual capital expenditure (the required amount to maintain…
