Ground Breakers: This is unusual, a great morning for gold
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The biggest knock on the Australian gold sector in recent times has been its steep descent from peak to underperformance despite gold prices hovering near record highs.
It’s become fashionable to look at the fundamentals as well as the looming Apocalypse unfolding around us and think the pullback in equities mining – the safe haven investment – is a major buying opportunity.
It may well be, but the industry’s abuse of semantics around its cost reporting — the distinction between commonly reported all in sustaining costs and more accurate but rarely reported all in costs — equally has obfuscated the cash generating status of many companies mining the precious metal.
In one sense we are in the midst of a modern day gold rush.
Try getting workers in the Pilbara or accommodation for less than 11,000 buckaroos – a night – at Diggers and Dealers in Kalgoorlie, and you’ll see how hyped up the industry is.
A lot of news around gold producers in recent weeks has been resoundingly negative though, between Dacian Gold’s (ASX:DCN) decision to pull up stumps on open pit mining at its Mount Morgans gold mine, Evolution Mining’s (ASX:EVN) major production downgrade and St Barbara’s (ASX:SBM) troubles at Simberi and Atlantic Gold.
Gold equities on the ASX are in general down around 20% year to date after an already weak 2021.
But maybe we are hitting the nadir when it comes to dreadful news flow for gold producers.
Dacian Gold investors looks like they have an exit strategy, with Raleigh Finlayson’s Genesis Minerals (ASX:GMD) confirming plans to take it over in an all-scrip deal as part of the gold boss’ audacious attempt to build a new large cap gold miner by consolidating the historic Leonora district under a single banner.
Even better was Regis Resources (ASX:RRL), courted by Twiggy and finally getting to enjoy the fruits of its deal to acquire 30% of the massive Tropicana mine east of Kalgoorlie. Regis shot up by more than 10% today on news it had hit record production at its Duketon and Tropicana mines.
All up the miner delivered 123,901oz including ~92,800oz at Duketon and ~31,100oz at Tropicana, helping it stretch to make its 420,000-475,000oz guidance for FY22 (437,300oz).
AISC will be slightly above Regis’ previously guided $1425-1500/oz range, but cashflow was real and strong in the June quarter, with cash and bullion on hand up $60m from $167m to $227m.
RBC analyst Alex Barkley said the record quarter beat consensus expectations by a massive 8%.
“We expect this strong quarter is likely to help dampen operating concerns after a difficult FY22,” he said in a note.
“We highlight RRL and Tropicana’s strong track records of meeting gold guidance before this FY. A rising cash balance is also important for RRL as it prepares to fund discretionary growth options in FY23.
“We expect RRL to trade well on today’s news, particularly given recent stock weakness. Potential approvals of Garden Well Main UG and McPhillamys remain key catalyst events.”
While other gold stocks are also up today, Westgold (ASX:WGX) has been similarly favoured by investors after delivering record production at its Mid West gold mines in WA.
WGX, which paid its first dividend last financial year, churned out 270,878oz for FY22 including a record 72,591oz in the fourth quarter.
Its Cue gold operations contributed 24,797oz of that, also a record.
“Westgold has delivered three solid quarters and a cracking Q4 production result that has seen the company achieve its FY22 production guidance,” WGX MD Wayne Bramwell said.
“Our team has met every challenge that FY22 has thrown at them, and this result is testament to their resilience and ability to find a way to succeed.
“In FY23 the focus will be on simplifying our business to enhance profitability and Westgold starts FY23 with renewed focus, continued commitment to safety and confidence in our future.”
Maybe there are green shoots in the mid and large cap gold space after all. The All Ordinaries Gold sub-index was up 1.97% today, this morning outpacing all sectors except for the rabid energy sector which rose 3.12%.
Materials stocks gained 0.74%, with mild lifts for the big Pilbara iron ore miners.