Strengths
Gold emerged as the top-performing precious metal this week, declining only marginally by 0.07%. Lundin Gold reported a production of 245,000 ounces of gold, aligning with its annual forecast of 450,000-500,000 ounces. Its first half of 2024 All-In Sustaining Cost (AISC) stood at $872 per ounce, close to the guidance range of $820-$890.
Harmony Gold Mining Co. saw a substantial 78% increase in profit for the past fiscal year, driven by higher output and record-breaking bullion prices. The company anticipates earnings per share (EPS) of up to 13.88 rand ($0.78) for the year ending in June, up from 7.80 rand the previous year. Despite this, Harmony cautioned that rising costs could impact future profitability, causing a slight dip in its share price.
Gold prices have remained relatively stable around $2,500 per ounce over the past month. Anticipations of a Federal Reserve interest rate cut in September could support gold prices, though whether the cut will be 50 basis points or a more gradual 25 basis points is still uncertain. Lower interest rates generally benefit non-interest-bearing assets like gold. Additionally, gold ETF holdings increased in August, reflecting continued investor interest.
Weaknesses
Palladium was the worst-performing precious metal this week, falling 6.16%, with no specific news other than recent weaker employment data potentially contributing to the decline. The U.S. Mint reported American Eagle gold coin sales of 10,500 ounces in August, a significant drop from 22,500 ounces in July and 94,500 ounces in August 2023.
UBS has raised concerns about Sibanye Stillwater, citing the potential for further value erosion. The firm believes management may need to undertake additional capital raising, capacity closures, or project deferrals to manage debt and mitigate cash burn.
The collapse of Victoria Gold Corp.’s Eagle Mine, following a cyanide spill, highlights ongoing issues in Canada’s mining sector. The restoration of the Eagle Mine, which closed in June, is expected to cost approximately C$150 million ($111 million), continuing a troubling legacy of environmental cleanup in the region.
Opportunities
First Majestic Silver Corp. has agreed to acquire all outstanding shares of Gatos Silver Inc., which holds a 70% interest in the Chihuahua mine in Mexico. Gatos shareholders will receive 2.550 shares of First Majestic for each share held, valuing the offer at $13.49 per share based on the September 4 closing price.
Goldman Sachs recommends a long position in gold, viewing it as a strong hedge against geopolitical and financial risks. The bank anticipates additional support for gold from potential Federal Reserve rate cuts and sustained central bank purchases from emerging markets.
Allied Gold is securing a funding package of $225-$275 million for its Kurmuk development project in Ethiopia, which includes a $125-$175 million stream and a $75-$100 million gold prepay agreement. The project’s location near the Sudanese border introduces geopolitical risk, but RBC expects this to limit the number of potential buyers.
Threats
Sibanye Stillwater’s forecast for FY25 unit costs, which are expected to rise by 7-11% year-over-year, is concerning. This increase surpasses South African mining inflation and contrasts with peers’ efforts to cut costs, according to JPMorgan.
Despite gold’s impressive performance above $2,500 an ounce, some experts, such as former strategist Jim Paulsen, suggest that the metal’s strong rally might soon end. Paulsen argues that gold prices could decline even if the Fed cuts rates, as recession fears diminish and gold’s recent rally could be nearing its peak.
UBS maintains a “sell” rating on Northam Platinum, noting that the company’s valuation metrics remain unconvincing. With poor cash conversion and limited restructuring, Northam might face further valuation challenges and reduced growth prospects in the medium term.
