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Mining
The head of Australia’s largest gold miner Northern Star Resources (ASX:NST) has predicted a volatile end to the annus mirabilis for the world’s mainstay commodity, suggesting the US Election is a wildcard for investors in the precious metal.
Next month’s US Fed meeting looms as a potential launching pad for another move up in the yellow metal, where bets on prices for next year are already ranging as high as US$3000/oz.
NST MD Stuart Tonkin stopped short of suggesting gold was due for another leg up, with analysts betting hard on a first US rate cut in the new cycle next month as inflation in the States trends in the direction of chairman Jerome Powell’s 2% target rate.
But he said the environment was ripe for volatility as a chalk and cheese election between Republican firebrand Donald Trump and Democrat Kamala Harris takes centre stage in the coming months.
“I think there’s going to be volatility in the gold price up through until the US election, not just in relation to interest rate calls,” he said on the sidelines of a presentation at the WA Mining Club yesterday.
“But investors should be looking at gold for the long term. That’s what Northern Star does. We’ve got things that can survive through the cycles.
“We’re investing in assets that (have a) multi-decade outlook under a various range of gold price environments.
“I think investors really should be looking at those deep value companies that are doing the right things throughout the cycles.”
Bullion closed Wednesday on the LBMA at US$2505/oz, in the order of $3680/oz Australian.
It’s led to a stunning reporting season for the sector, which until recently had fallen in the pecking order for generalist investors behind battery metals like lithium and bulks like iron ore.
With a downturn beginning to emerge in the commodities powered by the post-Covid boom, gold has been a safety net in 2024.
Evolution Mining (ASX:EVN) reported a 135% lift in underlying profit to $482m for the full financial year, with NPAT of $422m.
Northern Star reported $639m in NPAT, Perseus Mining (ASX:PRU) delivered $535m once converted into AUD, Westgold Resources (ASX:WGX) reported $95m and Ramelius Resources (ASX:RMS) generated $217m.
At a collective $1.9bn, that compared to a combined $374m across the big three lithium stocks – Pilbara Minerals (ASX:PLS), Mineral Resources (ASX:MIN) and IGO (ASX:IGO) – whose largest contributor PLS last year eclipsed the top Aussie gold stocks on its own.
It’s an astonishing turnaround. The question now for those gold companies profiting off a record price is what they choose to do with the cash while the times are good, a question on the mind with major international gatherings like the Denver Gold Forum coming up.
“If they’re not happy in this environment I don’t know when they’re going to be happy,” he said.
“It’d be exciting times to see what people are doing with the cash they’re generating.
“Are they reinvesting it in exploration? Are they returning it to shareholders? Or are they moving away from gold into other commodities.”
NST is spending $1.5 billion doubling the size of the Kalgoorlie Super Pit’s process plant over the next three years. By 2029, it’s aiming to have the operation’s output doubled to record levels of 900,000ozpa, astonishing given its ancient age.
The Golden Mile, a gold system encompassed by the Super Pit and adjacent Mt Charlotte underground mine, was first discovered in 1893.
“I can tell you, in 100 years, there will be activity at that Golden Mile,” he told the room at Optus Stadium.
“There’s more gold in the ground than has come out of it, so I’m just a caretaker at the moment, passing the baton on to the next leg of that asset’s life.”
It is also putting close to $200m into exploration each year, with a high grade deposit known as Hercules found 35km south of the big pit viewed as a major success story.
While Tonkin was careful not to get too bullish on the outlook for gold, some analysts are very excited about the prospect of falling interest rates.
“The prospect of falling real interest rates may already be exciting Western gold buyers. Since the liquidation spree ended in mid-May, Westerners, in the physical gold ETF’s we track, have accumulated 40 tonnes of gold,” US fundies Goehring and Rozencwajg said in their latest natural resource market commentary.
“What might happen if real interest rates move lower? History tells us Westerners will aggres- sively become gold buyers. Let’s take a stroll down memory lane. Gold hit a low of $1,060 at the tail end of 2015 when real interest rates were zero.
“Fast forward to mid-2017, inflation nudged over 2%, short-term rates climbed to 1%, and real rates slipped into negative territory. The result? Western investors went on a gold shopping spree, snapping up nearly 700 tonnes of gold in eighteen months.”
Real rates turned positive in 2019 after a hiking cycle that began in 2017, before the Fed dropped rates again.
“In response to falling real rates, Western demand for gold surged with 1,300 tonnes added in just twelve months. Between late 2015 and the summer of 2020, gold prices doubled as these ETFs accumulated a whopping 2,000 tonnes. If we’re entering a new era of falling real interest rates, we might see a gold rush reminiscent of 2016 and 2019,” Goehring and Rozencwajg said.
“Incidentally, Western gold buyers are waking up just as central banks seem to be cooling off their aggressive buying. After setting a record in Q1 2024 with 300 tonnes, central bank purchases slowed to 183 tonnes in Q2—down 30% from the previous quarter, though still 6% higher than Q2 2023.”
Goehring and Rozencwajg noted Chinese and Indian retail gold buying remains very strong, up 60% and 46% in the June quarter YoY despite prices some you would have thought were prohibitively high. Throw recovering Western demand in and rate cuts could be very advantageous for bullion.
“We remain exceedingly bullish on gold prices, confident that a major bull market is underway. Given the deeply undervalued status of gold equities, we believe they deserve your attention,” they added.
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