Searching For Quality Gold Miners: Polyus, Polymetal, Centamin And More

10th Jun '20 by Jack Brumby

70 comments 9812 reads

Everything is changing all the time in these markets. It feels slightly breathless. Perhaps that’s why my thoughts are turning to cool, calm gold: something that is as popular today as it was in Ancient Egypt. Through it all, gold endures.

I’m seeing more and more investors dusting themselves off and declaring, with some bemusement, that they are back to break even for the year. This return to previous valuations is odd, given that global financial health has deteriorated, with debt spiking across economies around the world.

It’s great that share prices are recovering right now but we will be tested again in the future. The more I dig into gold the better I like it as an investment over the next few years - here’s an argument for why you should have a little exposure to the yellow metal, along with a look at some likely candidates.

Bull point one: game-changing monetary policies

Despite the rally in equities, gold has outperformed the market this year, increasing in value by 10.91% from 1 January to 17 April. In Q1 of 2020:

Gold ETFs saw the highest quarterly inflows for four years. Holdings of these products reached a record high of 3,185t by the end of the quarter.
Central banks continued to amass gold. Global gold reserves grew by 145t in Q1 (although this is expected to slow).
Total Q1 supply fell 4% as coronavirus lockdowns hit mine production and gold recycling.

These factors helped push the US dollar gold price to an eight-year high. The price also reached new record highs in Indian rupees and Turkish lira, among others. But that’s just this year - there are powerful factors that can continue to drive the gold price in the medium term.

It’s getting harder all the time to dig up new gold, but demand continues to increase. At the same time, epic central bank asset purchases must be having some kind of weakening effect on fiat currencies (which are used to price gold).

These dynamics paint a favourable picture for the gold price. We can see that when the global financial system broke and central barks embarked on their colossal (and ongoing) asset repurchase programs, the price of gold shot up.

There appears to be a strong positive correlation between the amount of debt in the system and the price of gold…

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Nick Jacobs

12th Jun '20

I'm about 15% also, mostly in gold, but some in Centamin.

I think I should have a higher percentage at the moment and will probably buy more. In my opinion, central banks will be practically forced to print more money to avoid deflation now, which will lead to inflation in the future. Gold and land are the obvious refuges, but land gets taxed.

Jonathan C

Thank you to Jack and all commenters: there is much to digest in your comments. Caledonia Mining also trades on AIM (Caledonia Mining (LON:CMCL)) in the form of "depositary interests representing shares". The company is registered in Jersey and owns a majority share of a mine in Zimabwe (obvious risk!). A point of particular interest is that a new shaft is in the process of being developed to increase annual production from about 55,000 ounces to about 80,000 ounces.

Both Russia and Zimbabwe involve evident political risks but perhaps we can have more confidence of good governance from Jersey than Russia? Most of the Directors seem to be South African. If you own a Russian gold miner, Caledonia is an opportunity to diversify your risk.

AISC = $879 in the last quarter.
"On-track to achieve on-mine cost guidance for 2020 of between $693 to $767 per ounce and all-in sustaining cost guidance of between $951 to $1,033 per ounce" (1Q 2020 report).
Net cash and a dividend.
Five year ROCE = 23.8%
2019 dividend cover = 14.2

EPS and revenue have grown every year as from 2015, except for a teensy drop in revenue in from 2017-18.

jonbeck

Brilliant post Jack. Like you I'm anticipating gold to rally in the midterm as Macro conditions deteriorate. I currently hold US Newmont Corp NEM & Canadian Minor Equinox Gold Corp (EQZ), WisdonTree's Physical Gold ETF PHGP. Also an inflation hedge, I'm holding Bitcoin tracker (BIT-XBTE) and Etherium tracker (ETH-XBTE)

BANNA162

13th Jun '20

Good review. I like Polymetal and Highland Gold.

Momoko Miyamoto

not much of a chartist but looks to me like gold is approaching a double top, despite the extreme fear and QE the price hasn’t held above the previous high during great financial crisis. I reckon other precious metals are better inflation hedges because they are actually useful in our electrified future - e.g. platinum for fuel cells and silver for electronics. Gold is a barbarous relic and has little utility other than bling, it’s value is an illusion, platinum is 30 times rarer than gold but is currently less than half the price. I wouldn’t be surprised to see sub $800 within 2 years. The “corona-hysteria” has been overdone in the UK and most other countries are just getting on with life, the global recovery will be swifter than the market expects. The UK economy may be another matter however. Thanks to bungling Boris, we can look forward to another decade of taxes and austerity.

intuitive6191

15th Jun '20

This thread is something a bit different and has obviously been well received. I was hoping that Petropavlovsk might get a mention - a share that has taken a seeming eternity to revive its fortunes.

After following idly for a few years I bought a few as a hedge when Pavel Maslovsky made a significant purchase of £2million shares on the 31st December. This seemed to be a reasonable commitment.

Since then the share has moved quite well no doubt helped by the rising gold price. There was one paragraph in the annual results announcement (27th May) however that caught my eye.

“Profit for the year marginally decreased by 0.8%: to $25.7m (2018: $25.9m) reflecting higher impairment reversals in 2018 and reduced interest capitalisation in 2019 following POX completion as well as the impairment of the Company's holding in IRC Ltd. ("IRC") amounting to $23.4m, as a consequence of the potential disposal of the investment”

This wasn’t picked up in the various forecasts and seemed to be unexpected? On this point, the Stockopedia data has still not been updated – after nearly 3 weeks and it’s a getting to be a bit of a sore point.

I would be interested in some ongoing metals and mining discussion. I am not an expert or a fan of hole in the ground speculative stuff, however the steel and mining industries have in the past given me many useful indicators when it might be best to sell and hold cash.

Hopefully, metals and mining discussion will have a future here.

Alphaflight

Momoko Miyamoto:

UK house prices measured in Gold for example are back to their 1989 level. Gold holds its purchasing power as everything around it pretty much changes:

http://pricedingold.com/uk-house-prices/

Government bond yields are now so low (or indeed negative) that the carrying cost of gold is about the same as the (so-called) ‘risk free rate of return’ or less. Actually it is cheaper to own Gold in a vault in London (0.45% p.a.) than hold a German 10 year bond right now. So the case for higher gold prices makes sense.

Central banks have and still are accumulating gold and that’s why it is worth owning some. The fiat paper that they issue has no intrinsic value and in fact fails to match the definition of money criteria devised by Aristotle. So I merely copy the central banks' model as they seem to think gold is still worth something. Note that up until recently the BIS (the bankers’ bank) accounted for everything in Troy Ounces, they didn’t even bother with the charade of fiat currencies!

Platinum tends to be correlated to the good times. It is cheap right now mainly because we are banning diesel cars (which use platinum in their catalytic converters, petrol cars use palladium mainly – same family of metals though).

Yes silver looks cheap based on the historical ratios of gold to silver. Silver is more volatile than gold but positively correlated to it so acts like rocket fuel in a gold bull market. My opinion is you should own both as a portfolio hedge but gold is the safer hedge.

Zoiberg

16th Jun '20

Petropavlovsk (LON:POG) is carrying $565m in debt . My spreadsheet does not show it performing as well as other miners in a rising gold price scenario. I suspect that it is already over valued.

mojomogoz

Go for Caledonia Mining (LON:CMCL)

Its sort of like Games Workshop (LON:GAW) but with better margin, growth and much better value.

18th Jun '20

Polyus Pao (LON:PLZL) has been hit by Covid as this report relates.

https://www.themoscowtimes.com/2020/05/20/russia-cordons-virus-hit-gold-mine-in-siberia-a70321

19th Jun '20

Zolberg

Thanks for the response. Petropavlovsk has had a good run having 5 bagged since its eternal lows and doubled since the directors significant purchase. It could be time for a pause as it has been on a roll for while now..

At one stage it was almost a billion in debt and I was impressed how it had managed to turn this around at a much lower gold price than today. So far it has proved to be a very good hedge. I also see that it has applied for a secondary listing on the Moscow Stock Exchange.

If anyone from Stockopedia reads these threads it's worth checking on the data feed here. Results of the 27th May have still not been added to the StockReport. Other investor sites have managed to do and it's difficult to see what the issue is. Can this be resolved quickly?

26th Jun '20

Some very good arguments here from Kitco / Dan Oliver (Myrmikan Capital) in favour of $10,000 /toz and the small gold miner space:

https://www.youtube.com/watch?v=eASLNfftJbg

No deal with the EU?

1st Jul '20

The shares have now risen by close to 300 per cent since January but the management structure is super unstable (multiple board coups!). There is better value out there I feel.

Rori

3rd Jul '20

Centamin price looking a little rangy at the moment with Elder's True divergence type on many timeframes. Good company and Gold coming into favour so watching the technicals as may get to see a better entry point if bearish divergence plays out somewhat

JOHN GASCOYNE

24th Aug '20

I am very annoyed by the low takeout price for HGM, aided by the three Russian oligarchs selling at a low price.

The writing was on the wall when the takeover was announced I'm afraid. It's a shame as Highland Gold Mining (LON:HGM) was a great stock.

AnonymousUser3343

2nd Dec '20

Pan African Resources goes Ex Dividend tomorrow, paying 0.68857p, with a cash payment into account 15-Dec-20‬.

This is a substantial increase on the dividend amount last year.

Pan African are well placed to capitalise on a high gold price, operating a high margin, long mine life gold producer with assets in two of the world’s renowned gold provinces, in South Africa.
Pan African is a good one for 2021 with a high gold price, production target 190,000oz to June 2021

FY20 Financial Performance:
Production up 4% to 179,457oz
Revenue up 25.9% $274m (2019 $217m)
Net debt down 51.9% to $62m (2019 $129m)
EBITDA profit up 52.3% to $87m (2019 $57m)

LongValue

As an investor in Highland Gold Mining (LON:HGM), I was very disappointed with its takeover at 300p per share. In my view, it was a well-managed business with a strong portfolio of assets ranging from exploration through to production. And, importantly, it was coming closer to the commissioning of its Kekura project.

However, one positive seems to have emerged from the above. Highland's CEO, Denis Alexandrov, has now moved on to another Gold producer. That is, Petropavlovsk (LON:POG) (I'm a shareholder). Where he has been appointed Chief Executive. The standout feature of Petropavlovsk (LON:POG) is its ability to extract Gold from refractory ore. Another standout feature is its Boardroom battles. I bought into the company on the assumption that those disputes were concluded. I was wrong. There is now a forensic investigation into the past management's actions. Having said that, I get the impression that the focus has shifted to making it into a successful and well-managed enterprise. Which would fit with the appointment of Alexandrov.

gmtrader

21st May '21

Pan African Resources (LON:PAF) Nearly a year on from this written report and things are looking a little different here. SP has risen only a little, but take a look at the Free cashflow ps now and it tells you a different story.

Searching for quality gold miners: Polyus, Polymetal, Centamin and more

Bull point one: game-changing monetary policies

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Jack Brumby

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