19. November 2020 | 09:27 CET
AngloGold Ashanti, Blackrock Gold, Newmont: Investing in gold - but how?
Gold investors are in a comfortable situation: The precious metal has lost a little from its highs, but still shows excellent relative strength at the USD 1,900 an ounce mark. Although news of vaccines has taken some pressure off the markets in the short term, the big picture for gold investors remains intact. The crisis of the century requires trillion-dollar measures. This flood of money, in turn, increases the risk of further problems and could drive inflation. Contrary to the opinion of many investors, it is not inflation that drives the gold price, but their expectations. Given the measures already taken and those still in the pipeline by governments and central banks, there is every reason for increased inflationary expectations. But how does an investment in the expected gold boom succeed?
While grandmother still hid bars and coins under the bed, today's investors can resort to gold ETCs. These usually securitize physical gold and can also be held in custody at attractive fees and actively traded. Yield hunters nevertheless prefer to use gold shares. The reason: stocks such as AngloGold Ashanti, Blackrock Gold or Newmont usually offer leverage on the gold price. Depending on how a Company develops, the gold reserves in the ground are also valued.
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ISIN: CA09258M1014 , ZAE000043485 , US6516391066
"[...] Our projects are at the initial, high reward exploration stage. [...]" Humphrey Hale, CEO, Managing Geologist, Carnavale Resources Ltd.
AngloGold Ashanti: Slowed down by the pandemic
AngloGold Ashanti is one of the largest gold mine operators in the world and is particularly well-positioned in Africa. The rising gold price has also been good for the share: on a one-year horizon, the return on investment is still around 10%. Although this is less than the gold price has risen during this period, AngloGold Ashanti is also in a unique situation. The Company is restructuring itself, buying new projects here and there, and separating itself from other, less lucrative projects.
Overall, however, the Company's production costs are still considered too high, but being in a pandemic also means that restructuring cannot proceed as quickly. Geologists and the management team must travel to visit new projects, but travel is only possible to a limited extent during the pandemic and, above all, is challenging to plan. This being one of the reasons why the share price has fallen under the wheels in recent months. AngloGold Ashanti is the best example that the price of a gold producer can also lag behind the development of the precious metal.
Blackrock Gold has two irons in the fire
The situation is different with Blackrock Gold. Within the last year, the price has tripled. In reflection of this, the price decline of the past months no longer looks dramatic - on a three-month view, the share price fell by almost 50%. Blackrock Gold operates two precious metal projects in the US state of Nevada and is currently working to define the deposits more precisely utilizing exploration drilling. During the summer the market celebrated drill results of 26g/t gold or 2,030 g/t silver.
Currently, Blackrock Gold has commenced a drill program on its Silver Cloud property in Nevada that is to be completed by the end of the year. The goal is to demonstrate that the property has similarities to the geology of the nearby Hollister Mine operated by Hecla. Blackrock had previously announced that it might seek a separate public offering of its Silver Cloud property. The Tonopah flagship project is also progressing. Into 2021, Blackrock intends to drill gold for precious metals. Given the activities on two projects and the future Company results, Blackrock Gold's share could be attractively valued again after the price setback of the past months.
Newmont under pressure - small companies could benefit
The Newmont share is also a perennial favourite when it comes to gold. The world market leader has acquired and integrated Normandy, Franco-Nevada and Goldcorp in recent years. Most recently, Newmont increased its dividend and reported a high free cash flow. Despite the pandemic, the established Company is earning well from the high gold price. The good earnings show in the share price, which has risen by around 60% on a one-year horizon.
Recently, however, the share price lost some ground, and although Newmont is doing well, such companies are still under pressure to replace depleted reserves. The pandemic makes this task more difficult. Beneficiaries could be smaller companies in the sector that can develop their projects in the shadow of the crisis without having to fear takeover bids at an early stage. For investors, these smaller companies could be an exciting niche in which to invest with foresight.