Gold mining sector looks healthy post pandemic - Exploration Insights
The rally in the gold market with prices now pushing to their highest level since 2011, has created a heathy environment for the mining sector even as the world economy continues to grapple with the spreading COVID-19 pandemic according to one market analysts.
In an interview with Kitco News on the sidelines of the Mines and Money Online Connect virtual mining conference, Joe Mazumdar, editor of Exploration Insights said that because of the higher gold price investor interest is growing across the sector with capital now flowing from major producers to mid-tier producers to junior explorers.
“The industry has been down so long; I mean, this all looks up to them,” he said.
Although $1,800 gold prices make a lot of gold projects attractive, Mazumdar said that it appears that companies are learning from their past mistakes and make a more conservative approach when it comes to valuing their project. Although a lot of projects are attractive in the current environment, Mazumdar warns that not all should move forward.
“Now we're seeing feasibility studies ramping up to about 1400,” he said. “But the question really is how do you finance these projects and are the people that are funding these projects going to be using $1,700 gold price or $1,400 or $1,500?”
“Retail and potentially institutional equity, like the leverage that these sort of marginal projects provide. So if you like that, I recommend, you go for liquidity. Go for companies with good working capital and hopefully they never build it,” he added “It’s the opposite of field of dreams: don't build it and they will come.”
Along with the higher gold price, Mazumdar said that he is also encouraged with the merger and acquisition activity growing the marketplace. Although Australian and Chinese companies have been the most active, Mazumdar said that it is only a matter of time before Western companies start looking at growing their companies.
“Cash bids by Western companies is a sign that, you know, we've got a really good market,” he said.
As for what companies Mazumar is looking at right now, in a world impacted by the coronavirus, he said that investors should look at companies are able to work and move their projects forward.
“The companies that have are doing well for me are the ones that have got money and also have people that can work right now,” he said. “They're currently drilling. They're currently doing exploration there, releasing news flow. The problem is when you give money to a company and they're sitting there waiting to actually do something they're only burning G&A,” he said.