سيف الخيال
23-05-2002, Thu 5:30 AM
They say it can only move higher.
"In the short-term, we'll see a steady build of new highs in the gold price," says Piet Stoltz, who recently moved from research over to investment banking at BoE Bank.
The rally in gold's price is being largely driven by a slow recovery in the U.S. economy and fears of continued instability on the world stage. Even if the U.S. economy did start to power forward, said Stoltz, "gold is still going to go up for the next 18 months."
Stoltz expects the price to be subject to volatility throughout 2002 and by 2003, to reach $330. He believes it would take "world chaos" to push the price to $400 an ounce or higher. The benchmark June gold contract ended up 10 cents to $316.10 an ounce Tuesday on the New York Mercantile Exchange and rose again Wednesday. See Futures Movers column.
Gold's traditional inverse relationship to the U.S. dollar was in evidence on Monday when the metal hit a 27-month high as the greenback touched its lowest levels in a year.
The rising price is forcing hedged companies to cover their positions. In South Africa, the large-cap hedgers are AngloGold (AU: news, chart, profile) and Durban Roodepoort Deep (DROOY: news, chart, profile). Durban Deep is currently borrowing the money to cover its positions, according to Stoltz, while AngloGold has the money to cover these hedges and they will manage themselves into a better position.
Gold analyst David Davis of SMBC agrees. "AngloGold has been very professional in managing their hedges. They've had a risk-management program in place since 1996, and because of the historically low gold price, the have achieved significant profit." They are managing their hedge book, quite effectively, said Davis, selling into their hedges at every opportunity.
In the meantime, the move to cover those positions will continue to push the price of bullion higher.
Enough to go around?
Also buoying the metal skyward is a looming shortage of supply.
World gold production is beginning to plateau, said Davis. Beginning in 2003, it will begin to drop off between 3 and 4 percent annually. By 2005, it will fall sharply.
That perceived supply shortage will put continued upward pressure on the price of gold.
Technically, says Davis, there is no shortage. "There are about 140,000 tons of gold on the surface, including about 30,000 tons held at the central banks and about 60,000 tons that are in the ground but easily accessible." But the production decrease will drive perception all the same.
South African mines, which are dug at deep shaft levels as opposed to the shallow open-pit mines, have a longer window from inception to production. On the low end, they run five to seven years; for larger ore bodies it can be 12 to 15 years.
An extended bear market in the price of gold pushed exploration expenditures in South Africa drastically lower, and Davis believes it will take a sustained gold price of $350 an ounce to bring an extended period of production.
Cost-wise, the timing is ideal. South Africa's currency, the rand, plunged 37 percent against the dollar last year. Even though it has largely recovered since the start of the year, the margins of South African miners are at unprecedented levels.
"In rand terms, it's economical to start up production," said analyst James Wellsted of JP Morgan. Beyond 2003, Wellsted expects the price to be $350 an ounce.
But "there are no new projects on the horizon in South Africa," said BoE's Stoltz, noting that even after the rand's fall, production will come in lower than the 375 tons of 2001. As well, he said, the quality of the grade is decreasing -- they mine the good stuff first -- and the deeper they have to mine, the higher the cost.
Meanwhile, a handful of current projects will result in replacement production: Anglogold's Moab Khotsong, which is going into production next year, will produce about 400,000 tons annually, and its Mponeng project, which currently produces about 300,000 tons a year, is due to be up to about 500,000 tons per year by 2004. Finally, the New South Deep project, a 50-50 joint venture between Placer Dome and Western Areas should reach 750,000 tons by 2004.
To buy or not to buy
Shares of South African mining companies, which are historically undervalued, are trading at about fair value, said HSBC analyst Rob Edwards. "But on a relative basis, they still look cheap." Both Wellsted and Stoltz agree.
Not SMBC's Davis. "They are not cheap," he said. Davis has put together a sentiment index in an effort to determine what premium investors are willing to pay for gold mining stocks relative to the spot price of gold. All things being equal in terms of how various companies are valued, he noted that the large-cap South African gold shares have now caught up to the 150 to 200 percent premium investors pay for the Canadian large-cap miners.
"The gold price is going up slowly, but investors are piling into these shares and the shares, as a result, are extremely overvalued," he said. Comparatively, it's the Australian miners that he believes are cheap. Davis does not follow U.S. miners.
Does he think that investors should buy shares of South African miners? "That depends on your risk profile," he said. "If you think the crises of the world are going to escalate, you can buy some very expensive shares. If you think things will pass, you will go underweight."
Long-term, Davis said, a truly conservative investor would be well-advised to buy the metal itself and avoid the gold mining shares altogether.
But shares of gold mining stocks, say the South African analysts, are to be traded, not held, whether the price of bullion goes up or down.
"In the short-term, we'll see a steady build of new highs in the gold price," says Piet Stoltz, who recently moved from research over to investment banking at BoE Bank.
The rally in gold's price is being largely driven by a slow recovery in the U.S. economy and fears of continued instability on the world stage. Even if the U.S. economy did start to power forward, said Stoltz, "gold is still going to go up for the next 18 months."
Stoltz expects the price to be subject to volatility throughout 2002 and by 2003, to reach $330. He believes it would take "world chaos" to push the price to $400 an ounce or higher. The benchmark June gold contract ended up 10 cents to $316.10 an ounce Tuesday on the New York Mercantile Exchange and rose again Wednesday. See Futures Movers column.
Gold's traditional inverse relationship to the U.S. dollar was in evidence on Monday when the metal hit a 27-month high as the greenback touched its lowest levels in a year.
The rising price is forcing hedged companies to cover their positions. In South Africa, the large-cap hedgers are AngloGold (AU: news, chart, profile) and Durban Roodepoort Deep (DROOY: news, chart, profile). Durban Deep is currently borrowing the money to cover its positions, according to Stoltz, while AngloGold has the money to cover these hedges and they will manage themselves into a better position.
Gold analyst David Davis of SMBC agrees. "AngloGold has been very professional in managing their hedges. They've had a risk-management program in place since 1996, and because of the historically low gold price, the have achieved significant profit." They are managing their hedge book, quite effectively, said Davis, selling into their hedges at every opportunity.
In the meantime, the move to cover those positions will continue to push the price of bullion higher.
Enough to go around?
Also buoying the metal skyward is a looming shortage of supply.
World gold production is beginning to plateau, said Davis. Beginning in 2003, it will begin to drop off between 3 and 4 percent annually. By 2005, it will fall sharply.
That perceived supply shortage will put continued upward pressure on the price of gold.
Technically, says Davis, there is no shortage. "There are about 140,000 tons of gold on the surface, including about 30,000 tons held at the central banks and about 60,000 tons that are in the ground but easily accessible." But the production decrease will drive perception all the same.
South African mines, which are dug at deep shaft levels as opposed to the shallow open-pit mines, have a longer window from inception to production. On the low end, they run five to seven years; for larger ore bodies it can be 12 to 15 years.
An extended bear market in the price of gold pushed exploration expenditures in South Africa drastically lower, and Davis believes it will take a sustained gold price of $350 an ounce to bring an extended period of production.
Cost-wise, the timing is ideal. South Africa's currency, the rand, plunged 37 percent against the dollar last year. Even though it has largely recovered since the start of the year, the margins of South African miners are at unprecedented levels.
"In rand terms, it's economical to start up production," said analyst James Wellsted of JP Morgan. Beyond 2003, Wellsted expects the price to be $350 an ounce.
But "there are no new projects on the horizon in South Africa," said BoE's Stoltz, noting that even after the rand's fall, production will come in lower than the 375 tons of 2001. As well, he said, the quality of the grade is decreasing -- they mine the good stuff first -- and the deeper they have to mine, the higher the cost.
Meanwhile, a handful of current projects will result in replacement production: Anglogold's Moab Khotsong, which is going into production next year, will produce about 400,000 tons annually, and its Mponeng project, which currently produces about 300,000 tons a year, is due to be up to about 500,000 tons per year by 2004. Finally, the New South Deep project, a 50-50 joint venture between Placer Dome and Western Areas should reach 750,000 tons by 2004.
To buy or not to buy
Shares of South African mining companies, which are historically undervalued, are trading at about fair value, said HSBC analyst Rob Edwards. "But on a relative basis, they still look cheap." Both Wellsted and Stoltz agree.
Not SMBC's Davis. "They are not cheap," he said. Davis has put together a sentiment index in an effort to determine what premium investors are willing to pay for gold mining stocks relative to the spot price of gold. All things being equal in terms of how various companies are valued, he noted that the large-cap South African gold shares have now caught up to the 150 to 200 percent premium investors pay for the Canadian large-cap miners.
"The gold price is going up slowly, but investors are piling into these shares and the shares, as a result, are extremely overvalued," he said. Comparatively, it's the Australian miners that he believes are cheap. Davis does not follow U.S. miners.
Does he think that investors should buy shares of South African miners? "That depends on your risk profile," he said. "If you think the crises of the world are going to escalate, you can buy some very expensive shares. If you think things will pass, you will go underweight."
Long-term, Davis said, a truly conservative investor would be well-advised to buy the metal itself and avoid the gold mining shares altogether.
But shares of gold mining stocks, say the South African analysts, are to be traded, not held, whether the price of bullion goes up or down.