If the adage “follow the money” is to be applied to commodities, then currently the place looking most attractive to investors is gold mining.
The common theme at two mining investment conferences held last week in Cape Town was that putting cash into gold mining companies offers the best prospects in the commodity space.
At the 121 Mining Investment event about half of the more than 100 mining companies attending were either pure gold plays, or were targeting the precious metal in their portfolios.
The conference aims to put together mainly junior miners with investors seeking growth opportunities, and it was clear that gold companies were the flavor of the month.
A panel made of up investors from across the spectrum, ranging from major banks to smaller specialized funds, was unanimous in their support of gold.
“For us, gold is the only place to be this year,” said one of the fund managers, who can’t be identified as the event was held under Chatham House rules.
Another investor who, in addition to placing funds in junior miners, offers expertise and industry contacts by sitting on the board of directors, said the hype surrounding lithium, cobalt and other battery metals has largely subsided, and been replaced with gold.
At the Investing in African Mining Indaba, also held in Cape Town last week, gold companies featured heavily on the agenda, with almost an entire day of the three-day program for junior miners devoted to the yellow metal, substantially more time than for the battery metals, copper, uranium or other minerals.
The reason for the surge in interest in gold mining was two-fold; firstly a positive outlook for gold prices and secondly, the relative advantages of exploring for, and developing a gold project over other types of mines.
REWARDS, RISKS
The likelihood that the U.S. Federal Reserve will hold off increasing interest rates, and the clouds gathering over the world economy, have boosted gold’s prospects for 2019, with some of the conference participants even being bold enough to call the start of a sustained bull run.
While it’s generally good advice to treat gold bulls with caution because of their permanent “buy” recommendation, it’s possible to make an argument that the sluggish market for the precious metal of the past few years may be over.
Spot gold has been trending higher since a closing low of $1,173 an ounce on Aug. 16 last year, ending at $1,314 on Feb. 8, an increase of 12 per cent.
Gold has a fairly strong inverse correlation to U.S. 10-year Treasury notes, tending to rally as the yield drops.
The 10-year yield has been falling in recent weeks as the market responds to the cooler economic outlook, the lower risk of Fed rate hikes and ongoing uncertainty over the trade dispute between the administration of U.S. President Donald Trump and China.
On the mining front, exploring for gold and establishing a new mine compares favorably from a capital cost perspective against similar efforts for copper, cobalt and other minerals.
While Africa as a whole suffers from a poor image among investors, the countries that are on the more attractive end of the scale also tend to be where gold can be discovered and developed.
These include nations such as Ghana, Mali and even the former global gold powerhouse South Africa.
However, the two events in Cape Town also highlighted the challenges of undertaking projects in Africa, with numerous complaints about the continent’s governments changing the rules too often, and generally seeking to extract a greater share of the mineral wealth, perhaps to the point where mines become unviable.
The kidnapping and killing of Canadian geologist Kirk Woodman in the West African country of Burkina Faso last month, while working for gold explorer Progress Minerals, also highlights the dangers of working in certain countries.
Nonetheless, the happiest miners in Cape Town were the ones with gold mines either in production, or near production, as it was their conference booths that investors were beating a path toward.