Insights

Third-Quarter 2021 Recap: Gold Companies Look Optimistic Heading into Year-End

Strengths

  • Calibre Mining pre-reported strong third quarter production results, beating consensus expectations for the quarter. The company maintained 2021 guidance (170,000-180,000 ounces) and with the fourth quarter anticipated to be the strongest quarter of the year, the company hopes to achieve the top end of the guided range. The company reported a strong quarter-end cash position of $72.9 million (with no debt), up $6.6 million from $66.3 million in the second quarter.
  • For $50 million, Maverix Metals agreed to acquire a gold stream from Auramet that is expected to deliver 5,000 ounces of gold to Maverix per year. Maverix will make ongoing cash payments equal to 16% of the spot gold price for each gold ounce delivered as outlined in the agreement.
  • Gold shipments from Europe’s key refining hub rose to 116.4 tonnes in August from 94.1 tonnes in July, according to data on the website of the Swiss Federal Customs Administration.  Sales to India climbed 93% to 70.3 tonnes (which equivalent to 154,985 pounds), and shipments to China fell 9% to 18.2 tonnes. The tonne is a metric unit of mass equal to 1,000 kilograms or 2,204 pounds.

Weaknesses

  • The World Gold Council (WGC) provided updated ETF data showing net outflows of 15.2 tons in September, with outflows in North America and Europe only partially offset by inflows in Asia. Global gold ETF holdings at September-end were 3,592 tons, the lowest level since April 2021. The WGC uses the imperial measurement (e.g., a ton) versus the metric measurement (e.g., a tonne) when reporting on gold and other precious metals.
  • Wheaton Precious Metals CEO Randy Smallwood says it’s getting “tougher and tougher” for mines to get approval and to get developed, posing the biggest challenge for his company to spend money. Without mines getting developed, and with exploration having a harder time finding new greenfield precious metals deposits, Smallwood says the company won’t have too many other options than to potentially boost the dividend, considering all the cash it is earning.
  • Platinum and its sister metals palladium and rhodium — used in pollution-cutting catalytic converters — suffered sharp drops as carmakers shuttered plants and trimmed output guidance during the quarter. The price slump was a big contrast with the booming performance earlier in the pandemic, which was driven by supply shortages and hopes of a stimulus-led economic recovery. Rhodium, one of the more expensive precious metals, suffered the most as its demand comes almost entirely from the auto sector.

Opportunities

  • Brixton Metals announced new assay results, (the purity of the deposits containing gold), from additional surface rock samples on the Trapper Target. Rock grab sample D131206 assayed 135.5 grams per tonne of gold and 172 grams per tonne of silver. Six rock grab samples returned greater than 10 grams per tonne gold, the company reported.
  • Asante Gold announced a strategic investment of $5 million in Roscan Gold. The management team of Asante last sold its prior gold discovery in Ghana, Cardinal Resources, to Shandong Gold and is currently bringing the Bibiani Mine back into production. Roscan has a board chaired by Sir Samuel Esson Jonah and its CEO is Nana Sangmuah, a native Ghanian. Roscan has a strategic land position in a prolific gold camp in southwestern Mali and has historically delivered some impressive grades and intercepts.
  • Americas Gold and Silver announced work had restarted at the Cosalá operation in Mexico, and the company expects to start shipping concentrate before the end of October after the 20-month blockade was lifted. Cosalá is a significant component of its valuation, so if the company can deliver on the plan, the market could potentially rerate the stock.

Threats

  • Centerra Gold said that it filed an application seeking urgent interim measures in its international arbitration against the Kyrgyz Republic and Kyrgyzaltyn OJSC to address alleged operational and safety issues at the Kumtor gold mine. Centerra’s filing seeks to prevent the Kyrgyz Republic and the state-owned gold refiner from damaging the mine’s value and long-term viability, the company said in a statement. “Statements by Kyrgyz officials since the government’s illegal seizure of the Kumtor mine indicate that they are departing from the approved mine plan in ways that will cause irreversible damage. Based on recent reports, the government has also failed to adequately protect the mine’s infrastructure from flooding and other threats and may be facing production difficulties,” said Centerra COO Dan Desjardins in the statement.
  • Members of the National Union of Metalworkers of South Africa started a national strike following a deadlock in negotiations for a new wage deal. Union members didn’t report for duty in five of the country’s nine provinces and will hold pickets and marches during the morning, Numsa spokeswoman Phakamile Hlubi-Majola said by phone. The union has about 155,000 members and the strike is expected to attract more than 300,000 workers, including from allied unions, she added. “The strike is on, and nothing has changed,” Hlubi-Majola said. “As of this morning, workers didn’t go to work, so we are on strike.”
  • Sibanye Stillwater expects South African output of rhodium to decline 9% to 690,000 ounces by 2030, the company says in a presentation on its website. Sibanye says platinum output from South Africa may drop to 5.7 million ounces in 2030 from 6 million ounces in 2019.

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The companies mentioned in this writeup that are not held by the GOAU ETF include the following: Calibre Mining Corp., Maverix Metals Inc., Auramet Trading LLC, Brixton Metals, Asante Gold Corporation, Roscan Gold Corporation, Cardinal Resources Inc., Shandong Gold Group, Americas Gold and Silver Corporation, and Kyrgyzaltyn OJSC.

Distributed by Quasar Distributors, LLC. U.S. Global Investors is the investment adviser to GOAU.