Why Gold Miners Are Split
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|Alamos Gold CEO and president John McCluskey (left) speaks to Kitco's Michael McCrae|
(Kitco News) - The flow of money into exchange traded funds (ETFs) bifurcated the gold miners, said Alamos Gold CEO and president John McCluskey.
"What ETFs require is sufficient critical mass and liquidity, so when they come in they don't drive the price through the roof, and when they get out they don't push the company through the floor," McCluskey told Kitco News on the sidelines of PDAC in Toronto.
"I've heard as much as 70% to 80% of the trade that goes on the sector is driven by ETFs."
With more investor money moving into passive funds, the gold miner sector is being divided, McCulskey said.
"You've seen a bifurcation in the market. You have a small group of companies that are trading at a premium to net asset value, and you've got this other set of companies which are trading at a pretty heavy discount.”
Last year Alamos Gold (NYSE:AGI) produced 505,000 ounces with an all-in sustaining cost of $989 per ounce.
Alamos Gold has operations in Mexico, Turkey and Canada. Its flagship Young-Davidson in Ontario is expected to produce over 180,000 gold ounces this year.
Canada is a desirable jurisdiction with all the majors coming in over the past 18 years, McCulskey highlighted.
"BHP has come in, Vale has come in, Glencore has come in," he said. explaining that the majors are attracted to jurisdictions with better legal protection. "If you have serious money, you want to own assets in places like Canada, Australia and U.S."
In Turkey, Alamos received an operating permit for its Kirazli project. McCulskey pointed out that it took many years to get to that stage.
"It's a fairly lengthy process, and it's not what you would call a transparent process. It's very difficult to get information: what's happening and how long will it take?”