(Kitco News) - Cost inflation is hitting the gold space but with gold pushing higher, deep discounts on gold equities may present good buying opportunities, says Joe Mazumdar, editor of Exploration Insights newsletter.
Mazumdar spoke to Paul Harris, host of Kitco Mining’s Digging Deep, on April 4.
Harris gave the example of IAMGOLD (TSX:IMG) recently pouring first gold at its Côté mine in Ontario, Canada. The capex (capital expenditures) on the project is a $2.965 billion. Gold Fields (NYSE:GFI) finally achieved production at its Salares Norte project in Chile following years of development plagued by skyrocketing costs and technical delays.
With gold up more than 10% since the start of the year, Mazumdar said the incentive to build new projects outweighs the costs; the opposite was happening in 2023. A higher gold price is also likely to bring about more mergers and acquisitions (M&A).
“Companies are seeing that the price is going to go up and it's best to get projects now,” he said.
Financings are another positive sign for the gold sector. The Yukon’s Snowline Gold (TSXV:SGD) this week did a $25 million bought deal financing, increasing its cash position to more than $70 million. Meridian Mining (TSX:MNO) also announced a $17.5 million bought deal.
Mazumdar said a lot of investors are playing gold by investing in physical metal or gold ETFs, rather than the juniors. Institutional funds have stayed away from a sector they see as under-capitalized and too small. Lack of liquidity is also a problem.
Harris countered that “investors are really still open to the power of drilling results,” giving the example of Awalé Resources (TSXV:ARIC), which last week hit 32 meters at 45.7 grams per tonne gold at its Odienné project in Côte d’Ivoire.
“The story jumped more than 100 percent,” he said, noting the share price has risen from 18 cents to more than a dollar since mid-March.