For Immediate Release
Chicago, IL – October 14, 2016 – Today, Zacks Equity Research discusses the Gold, part 2, including Tahoe Resources Inc. (NYSE: (TAHO - Free Report) -Free Report ), Goldcorp Inc. (NYSE: (GG - Free Report) -Free Report ), Seabridge Gold, Inc. (NYSE: -Free Report ), Fortuna Silver Mines Inc. (NYSE: (FSM - Free Report) -Free Report ) and Newmont Mining Corp. (NYSE: (NEM - Free Report) -Free Report ).
Industry: Gold, part 2
Declining output from existing mines, geopolitical tensions, concerns over Brexit, China worries and delay in rate hikes is working in favor of gold after years of languishing prices. There are plenty of reasons to be optimistic about the gold mining industry for both the short and the long term. Below, we discuss what investors in the gold mining sector can look forward to in the coming months and years:
India, China Long-Term Growth Drivers
Over the last decade, combined demand for gold from India and China has risen 71%. Last year, these two markets accounted for 54% of consumer gold demand, up from 33% in 2005. India has a strong tradition of investing in gold, mainly in jewelry. Demand mostly increases around the wedding and festive seasons, which begin from mid-to-late August and continue until January. Expenditure on gold can account for almost 30% of the total wedding cost. This gives a boost to local currency demand and raises gold prices.
In China, people view gold, whether in the form of bars, coins or jewelry, as a natural vehicle for savings and diversification. Gold is embedded in China’s culture and the Chinese New Year and weddings are key events for the country’s gold consumption. In China, although demand might drop from the highs of 2013, growth remains intact. A continuous shift toward higher-margin products has lately been observed in the Chinese jewelry market. Gem-set and 18-carat gold items are increasingly popular, with the latter largely gaining popularity among the younger generation.
The World Gold Council anticipates demand from China to grow at least another 20% by 2017. While China’s middle class is expanding, India has a comparatively low level of per capita gold holdings. The powerful combination of increasing urbanization and strong cultural affinity for gold bodes well for the metal’s demand in both these countries.
China’s central bank also continues to purchase the precious metal on a monthly basis, as it sees value in diversifying in gold. People’s Bank of China (PBOC) now holds a total of 57.18 million ounces of gold. Currently, China’s gold reserves are ranked fifth in the world, behind the U.S., Germany, Italy and France.
U.S Markets Hold Promise
In the second quarter of 2016, demand for gold jewelry in the U.S. went up 1% year on year – the tenth consecutive quarterly increase. Demand in H1 at 48.6 tons was the strongest since 2009. Consistent, albeit moderate economic growth, improving employment levels and growth in consumer confidence are supporting demand.
Revived Appetite for Acquisitions
Vancouver-based Tahoe Resources Inc.’s (NYSE: (TAHO - Free Report) -Free Report ) acquisition of Lake Shore Gold Corp. will address challenges faced by both companies. The transaction added Timmins West and Bell Creek mines in Timmins, Ontario, to Tahoe's holdings, which include mines in Guatemala and Peru.
The enlarged company is expected to produce 370,000–430,000 ounces of gold in 2016 at total cash costs of $675–$725 per ounce and all-in costs of $950–$1,000 per ounce. Last year, Tahoe had bought a smaller rival Rio Alto Mining to expand its presence in Latin America.
Goldcorp Inc. (NYSE: (GG - Free Report) -Free Report ) has acquired Kaminak Gold Corporation. Kaminak's primary asset is the wholly owned Coffee Gold project – a hydrothermal gold deposit located at Yukon. This project has considerable potential for near-mine discoveries, with mineralization remaining open along strike and at depth.
The Coffee gold deposit currently has total indicated gold mineral resources of 3 million ounces and total inferred gold mineral resources of 2.2 million ounces. The acquisition is in sync with Goldcorp’s strategy of aligning with smaller exploration companies to identify and develop mining districts with large exploration potential that can grow its net asset value per share.
Seabridge Gold, Inc. (NYSE: -Free Report ) acquired SnipGold and its Iskut project which is a gold-silver-copper project with measured and indicated resources of 2.16 million ounces of gold, 13.17 million ounces of silver, and nearly 502.7 million pounds of copper. Fortuna Silver Mines Inc. (NYSE: (FSM - Free Report) -Free Report ) acquired Goldrock Mines and its Lindero gold project in Argentina. The project contains 1.15 million ounces of gold.
Gold Miners Optimizing Portfolio
The drop in gold prices in recent years had put the gold mining companies' bottom lines under pressure. The companies were actively pursuing opportunities to optimize their portfolio, including the divestiture of certain non-core or non-productive assets and reduction of debt, maximization of return on capital along with driving value across the portfolio.
Newmont Mining Corp. (NYSE: (NEM - Free Report) -Free Report ) sold Newmont Waihi Gold Limited in New Zealand to OceanaGold Corp. Over the last two years, Newmont has generated $1.7 billion through non-core asset sales, allowing the company to reduce its debt, invest in profitable production and return capital to its shareholders.
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