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Gold miners should be able to weather coronavirus storm - Gabelli Gold Fund

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(Kitco News) - Like the rest of the world precious metals mining sector has not proven itself susceptible to the impact of the COVID-19 global pandemic; however, companies still look resilient as the virus takes its toll on the global economy, according to one investment firm.

In the last few days the mining sector has been hit with a cascading wave of mine closures as companies are forced to comply with public lockdown measures. Monday, South Africa said that it would shut down all but a few necessary mines for 21-day. The news has caused a major spike in platinum and palladium prices.

Mines are also closing in other major jurisdictions like Northern Quebec and Ontario as provincial governments have ordered the shutdown of all non-essential businesses.

Monday, the world ’s biggest gold producer Newmont Corp. said that it was putting four mines on temporary care and maintenance.

Chris Mancini, research analysts at Gabelli Gold Fund, said that he views Newmont ’s announcement as a guide for further mine closures. The analyst added that he doesn’t see any major disruption in the mining sector if the shutdowns prove to be short-term.

“Although disruptive to operations, the closures should not be meaningful to gold mining company valuations, if closures don ’t drag on for very long,” he said.

Looking at Newmont, Mancini said that Newmont’s four-mine shutdown could cost the company about $65 million per month. 

“If these four mines are closed for the next two months under this scenario, then Newmont will have to spend $130 million at these mines while receiving no revenue from them.  $130 million equates to 15 cents per Newmont share compared to Newmont ’s current share price of $43,” he said.

Mancini added that in a stress test of Gabelli ’s portfolio he calculates that Newmont has about a year of liquidity in the current environment.

Mancini added that they expect other miners to be able to weather the current storm.

“As we hope that we break from this haze, we as investors in the industry are buttressed by sensible gold mining company managements, workforces committed to safe operations, and solid company balance sheets,” he said. “Equity market valuations should be able to look through temporary mine closures.”

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