Mining Executives Weigh In On Gold Prices, Financing, Projects: 'We're Definitely Glad'

Zinger Key Points
  • Gold notched another record above $2,300 on Friday, but gold mining shares lag.
  • Fed rate cut expectations, geopolitical concerns underpin precious metal.

TORONTO—It looks like the good mood among gold miners at last month's Prospectors & Developers Association of Canada gathering was warranted.

Gold prices notched another record above $2,300 on Friday, roughly a month after thousands of mining executives, analysts, financiers and investment bankers gathered in Toronto for the yearly conference and trade show.

At that time, gold was trading around $2,100 but was on its way higher amid expectations that the Federal Reserve will lower interest rates. Lower rates make non-interest-bearing gold more attractive. The precious metal has also gained ground amid worries over China's economy and tensions surrounding the war in Ukraine and the escalating conflict in the Middle East. Gold is often considered a safe haven in times of economic or political uncertainty.

Although gold mining stocks in general have been gaining ground, the industry is still lagging because of higher production costs. This suggests that if gold prices remain higher, mining stocks may play catch up, especially if inflationary pressures ease.

Gold prices are up around 13% so far this year, but as of Friday’s close the VanEck Gold Miners ETF GDX was up less than 11%. The VanEck Junior Gold Miners ETF GDXJ is closer, with a 12.55% gain.

Also Read: Global Mining Industry Faces ‘Trust Deficit’ Despite Being Asked To Produce More Metals For Energy Transition

During the Toronto trade show in early March, gold mining companies were already celebrating gold's ascent as they pitched investors. They're undoubtedly celebrating more now.

Here are some thoughts from their pitches.

Alamos Gold Inc. AGI: The presentation from Scott Parsons, senior vice president of investor relations for intermediate gold producer Alamos Gold seemed particularly prescient.

As he was speaking, gold was just shy of all-time highs, and Parson's said he expected to see record gold prices in the second half of this year. His prediction came true early.

He saw several factors underpinning gold, including rising government debt levels, significant deficits and rising debt service costs. Also, he saw central bank easing on the horizon and rising geopolitical risks.

Gold Royalty Corp. GROY: One way to invest in gold equities without the drag of rising costs is through royalty or streaming stocks. These companies provide miners with upfront financing in exchange for revenue or metal eventually produced from a mine. 

Gold Royalty chief financial officer Andrew Gubbels noted in his presentation that the company doesn't have any exposure to operating or capital cost inflation.

"We think it's a better way to invest in gold," he said.

NovaGold Resources Inc. NG: Richard Williams, chief operating officer of NovaGold, said his company is "highly leveraged" to the gold price.

"We have definitely been glad the gold price is going up," he said.

That's understandable because the stock needs a turnaround. Although shares have been rising over the past month as gold has climbed sharply, NovaGold is still down around 16% year to date. 

The stock has been under pressure over concerns about its Donlin project in Alaska, which it owns with Barrick Gold Corp. (GOLD). NovaGold wants to update its feasibility study but Barrick wants to continue exploratory drilling.

Equinox Gold Corp. EQX: "High gold prices are good for everybody" in the gold mining industry, said Rhylin Bailie, vice president of investor relations with Equinox Gold.

Prior to a recent run up, the company's stock wasn't doing as well as it should because it is working on a capital intensive project in Ontario, Canada, she said. Two other projects in the province that are not Equinox's have seen higher capex than expected, and investors assumed that would happen with Greenstone, she said.

But the company says the project is on budget and on track with its time schedule.

"We are going to be pouring gold during the first half of the year as promised," Bailie said.

Western Exploration Inc. WEXPF: "Welcome to $2,100 gold," Darcy Marud, CEO of Western Exploration, said in his presentation in early March. "That should put a smile on everybody's face."

It seems the grins are continuing.

At some point, because of the nature of all commodities, gold prices will fall back. That could come from trading consolidation or news that reduces the chances that the Federal Reserve will lower interest rates. Easing tensions in the Middle East or Ukraine could also take some of the shine off.

Over the long run, the precious metal is still seen by many as holding its value and playing a defensive role in portfolios.

"Gold weathers all price environments," Marud said.

Gold Terra Resource Corp. YGTFF: Even though gold prices are traveling higher, financing for gold exploration continues to lag, including in Canada, one of the world's most prolific mining jurisdictions.

"Investing in exploration is dying," said Gerald Panneton, CEO of of Gold Terra. "Yellowknife has probably been underexplored for 20 years."

That's the area in Canada's Northwest Territories where Gold Terra is exploring below the underground workings of a mine that was closed in 2003 when much lower gold prices made it unprofitable.

The plan for 2024 is to "drill, drill, drill," Panneton said. "We'd like to do 10,000 meters."

But the current financing market doesn't allow for that much, he said.

In January, gold financings dropped to $72 million, marking their lowest point in five years, according to S&P Global Market Intelligence. Last month, gold financings rebounded to $198 million, ending a three-month losing streak but remaining relatively low compared with most monthly results over 2022 and 2023, the data provider said.

Now Read: EXCLUSIVE – Key Indicator May Flip Global Economic Forecasts — ‘Copper Is Beginning To Define Its Own Narrative’

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