Developing and optimising a mine plan requires the operator to make assumptions about the commodity price and exchange rate in order to understand and make revenue projections.
Imagine then, sitting in the corporate head office of an Australian gold producer at the end of December 2023, wondering what the gold price might be over the next 12 months or so. It’s a fair assumption that very few, if any, would have pegged the gold price (in Australian dollar terms) increasing by 46% since then, rising from A$3,028 per ounce to the current level of A$4,416 per ounce.
It’s no surprise then that Australian gold producers generally have been quick off the mark, rushing out December quarterly production numbers and reminding the market that they have been making money hand over fist.
Of the early reporters, Ramelius increased production from 62.4koz to 85.3koz in the December quarter, taking its cash position to over A$0.5 billion. Gold Road lifted production from 34.4koz to 45.8koz and now has cash and investments of over A$900 million. Westgold surprised analysts with a marginal increase in gold production but didn’t see its net cash position improve over the quarter.
In terms of share price performance, the larger producers have fared better over the past year than the junior explorers, many of whom are surviving from one small cap raise to the next.
On the winners list, Catalyst Metals is up 331% over the past year, followed by Southern Cross Gold (249%), Spartan Resources (248%), Ora Banda Mining (224%) and Black Cat Syndicate (217%). Very tidy numbers indeed.
However, not everyone has seen a golden glow. Companies who missed on production numbers were disproportionately punished vs the peer group, with weakness also seen in cases where well-covered sovereign risk issues came to the fore during the quarter.
There are now over a dozen gold companies with a market cap of over A$1 billion, with many sitting on large, and growing, cash balances. It’s around this time in the cycle that questions start to be asked of how this cash should best be deployed. There are a number of options available:
- Organic Growth
- M&A Activity
- Dividends or special dividends
- Share buybacks
- Do nothing and just keep growing the balance sheet
Time will tell what the current group of cashed up gold producers will do in 2025.
Will we see more big deals like the Newmont-Newcrest and Northern Star-De Grey transactions? Will Gold Road keep its DEG shares and become a Northern Star shareholder or will it cash out and look to go shopping? Will one of the big African producers see value in Resolute, despite the current political risks? Which one of the emerging producers will perform so well that they get snapped up before really hitting their stride.
Whilst many analysts still see gold as a standout sector in 2025, none are forecasting another +45% increase in the gold price this year (although there is also little comment around the Trump effect on the exchange rate).
Quality projects and management always float to the top. The gold companies with quality orebodies, long lives and sensible operators at the helm are likely to have an intrinsic advantage over the coming year.
