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Gold SWOT: Kinross Gold's new COO has hit the reset button on the operating front

Commentaries & Views

Strengths

  • The best performing precious metal for the week was gold, but still down 1.04%. Torex Gold announced adjusted earnings per share (EPS) of $0.40, beating consensus of $0.33 on pre-reported gold sales of 119,800 ounces. Total cash costs were $760 per ounce and AISC (all-in sustaining costs) were $1,059 per ounce, both significantly better than consensus. With 357,000 ounces produced year-to-date, Torex is on track to achieve the upper end of its 2022 guidance of 430-470,000 ounces of gold with AISC of $980-$1,030 per ounce.

  • Endeavor Mining expects to be at the top end of its production guidance range of 1,315k-1,400k ounces, driven by the strong performance year-to-date from Ity, Hounde, Mana and a stronger fourth quarter expected at Sabodala Massawa. With the increased production and lower sustaining capex spend expected for the year, AISC could fall to $929 per ounce versus $960 per ounce previously.

  • i-80 Gold Corp. soared as much as 17% after drilling results from an exploration program in Nevada yielded "bonanza grade" mineral results. Separately, Peter Schiff's Euro Pacific Asset Management said it took a 1.4% stake in the
    miner in the third quarter. "We believe that the grades of mineralization at Ruby Hill are truly world-class, and the Hilltop Zone ranks among the highest-grade new discoveries being drilled anywhere on the planet," CEO Ewan Downie said in a release.

Weaknesses

  • The worst performing precious metal for the week was platinum, down 5.09%. Gold and other precious metals declined this week as the dollar climbed after comments from Federal Reserve officials dimmed the prospect of a pause in rate hikes, reports Bloomberg. Moves by the U.S. central bank to combat inflation through monetary tightening have helped drive the precious metal about 14% lower from its March peak by boosting the dollar and Treasury yields.

  • First Majestic Silver's adjusted EPS of ($0.09) missed consensus of ($0.01). Revenue was roughly in line with forecasts (production was pre-reported), but costs of $120.7 million were 15% higher than consensus. In comparison to the prior quarter, AISC improved mostly due to higher-than-expected production at Santa Elena and San Dimas.

  • Argonaut Gold executed a $17.25 million flow through share offering at the start of the week, with shares finishing the week off 16%.

Opportunities

  • Gold is getting strong demand from central bank buying this year as they try to diversify away from dollar-denominated assets. The third quarter saw record buying with a surge to 400 tonnes. The largest central bank buyer remains undisclosed, although it is likely China, (which stopped reporting its buying activities several years ago). Bloomberg Intelligence believes central bank buying could reach 750 tonnes in 2022.

  • Federal Reserve Bank of Minneapolis President Neel Kashkari tweeted that the whole notion of cryptocurrency is "nonsense" after the implosion of FTX revealed the industry's shortcomings. He further elaborated: No inflation hedge. No scarcity. No taxing authority. Just a tool of speculation and greater fools. His comments could be positive for gold going forward as crypto gets decimated with rising interest rates, while the yellow metal remains competitive.

  • Franco-Nevada's deal pipeline is robust today, particularly for new royalty/streams in the $100-$300 million range and on pre-development projects. As debt turns more expensive and equity markets increasingly challenged, more mine developers may choose streaming as part of a project financing package. Despite market weakness, Franco-Nevada continues to see sanction of development and/or construction.

Threats

  • Producers saw inflation pressures in third-quarter costs like those seen in the second quarter at 10%-12%. Importantly, management indicated on third quarter calls that they are seeing signs of easing in the cost structure, related to relief in energy prices, consumables, and reduced constraints to supply chains. Companies were hesitant to provide 2023 cost guidance, but general commentary is for operating costs to be like 2022 levels.

  • Gold declined as the dollar rallied after a Federal Reserve official cautioned that the U.S. central bank isn't close to pausing interest-rate hikes as inflation remains hot. Aggressive monetary policy tightening to cool inflation has weighed on bullion throughout the year by pushing up U.S. bond yields and the dollar. Investors have been searching for evidence that the Fed will pivot to smaller rate hikes, a possibility Chair Jerome Powell mooted at its last meeting. A lower-than-expected rise in the consumer price index last week stoked bets on a slowdown, resulting in gold notching its biggest weekly gain since the start of the global pandemic.

  • The volume of rough imports to India decreased by 55% year-over-year (down 45% month-over-month), while the value of imports decreased by 40% month-over-month (down 32% year-over-year), implying that rough prices increased by 8% month-over-month, but this could be due to mix. The value of polished stone exports from India – a proxy for demand – was down 11% month-over-month and down 26% year-over-year.
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