Diggers & Dealers: bull market in gold driving Australian mining sector
3 minute read
The overwhelming message to come out of last week’s Diggers & Dealers annual conference in Kalgoorlie, Western Australia, was that gold is the current driving force of Australia’s mining sector.
Gold has sparked a major turnaround in 2016 having started the year at $1,456 p/oz to reach an all-time high of $1,830 (intraday) on July 6th 2016.
During this period we have seen the market cap of many gold stocks multiply.
Near term gold producer, Blackham Resources (ASX:BLK), started the year at $0.225 a share to be trading at $0.92 today.
Prices are subject to fluctuation and investors should take a cautious approach to any investment decision in this stock and not base that decision solely on price movements.
The former explorer is about to start mining at its Matilda Gold Project located within 25km of its 100% owned gold processing plant.
Even companies that fell off the radar with the previous downturn in gold have now been revived, such as De Grey Mining (ASX:DEG).
DEG has its gold resources projects in the Pilbara region and has recently returned some promising results. In the past, low grades at some of its sites were not welcomed by the market but with the current gold price at all-time highs the tide has turned, the company having seen 400% growth since the beginning of the year.
On an overview of the sector, the HUI Gold Index that measures a basket of weighted gold stocks is up over 170% since the beginning of the year.
The revival of the gold sector is likely the reason why from the total 43 presenters at the Diggers conference, 29 of them were gold companies.
Gold is favoured by the junior mining category as it’s the least technically demanding of resources and is the easiest commodity to sell.
With central banks backed into a corner and their only two tools of lowering interest rates and printing money to boost economic growth failing, many high profile people are warning that it’s time to seek safety in gold.
Seen as a safe haven asset in times of political and economic turmoil, investors tend to move into the monetary metal to preserve their wealth.
Those wishing to leverage off any increases in the gold price move their assets into gold mining companies.
Perhaps that’s why some of the wealthiest people in the world have been piling into gold stocks.
Although there is no guarantee that these people are correct, that gold will hold or move higher, or that a particular stock in the sector will outperform due to the underlying asset appreciating in value.
Silver riding in the wake of gold
Others may seek so look to silver, which tends to ride in the wake of gold and is often described as gold on steroids due to its volatility on both the up and down swings.
BHP spinoff South32 (ASX:S32) has the Cannington silver-lead-zinc mine which is the world’s largest silver mine. Located in Queensland, the Cannington mine supplies 6% of the global silver supply.
Junior explorer Silver Mines (ASX:SVL) on the other hand has the highest grade undeveloped silver project in Australia.
Notably, silver has outperformed all assets this year including gold to be the #1 performing asset of 2016.