Here's Why Australian Gold Mining Sector Is In Great Shape
(Kitco News) - Australia’s weak currency is the key behind the country’s gold mining success, which is seeing new exploration and low debt levels, according to RBC Capital Markets.
“The Australia gold mining sector is very healthy; we have strong margins and low to no levels of debt in the sector. There’s plenty of exploration upside, which can deliver some additional discovery and volume growth over the next few years,” RBC Capital Markets director of Global Mining Research Paul Hissey said in the bank’s outlook.
The Australian gold mining sector stacks up well due to lower local currency, which allows miners to sell gold in U.S. dollars, creating additional margins and lowering costs, noted Hissey.
“North American producers don’t experience that because costs and revenue are in U.S. dollars [to start with],” he said.
The future of the sector depends on exploration, RBC stated, adding that new discoveries will not necessarily require a lot of high-level investments.
“Following the downturn of the gold price, we saw a lot of companies move quickly to cut costs, protect their margins, protect their balance sheet, make sure they did not find themselves forced into emergency fundraising,” Hissey said. “A lot of that cost-saving is behind us now and the opportunities going forward are really going to come through finding new ore bodies or expanding operations through the relatively modest investment of capital.”
The gold mining sector elsewhere is still struggling to attract new investors even though the gold price has normalized after plunging in 2013 and 2014, RBC’s outlook pointed out.
“We have some near-term concerns around the macro environment, China in particular,” Hissey stated. “We don’t see a lot of capital plans at the moment. Companies aren’t committing to building new projects and that suggests to us that in five-to-seven years, we are going to find ourselves starting to run out of important minerals, so the price will have to move higher.”