Gold re­cap­tures its glit­ter with four-month trad­ing high

National Post (Latest Edition) - - FP INVESTING - Gabriel Fried­man Fi­nan­cial Post gfried­man@na­tion­al­post.com

Move over Bit­coin. In 2018, so far, it’s gold that’s catch­ing investors’ at­ten­tion.

Gold hit a four- month high on Fri­day, trad­ing at US$ 1,338.39 per ounce on the back of strong pro­duc­tion out­looks from com­pa­nies, higher price pre­dic­tions from bank an­a­lysts and merger ac­tiv­ity.

“It’s go­ing to get more com­pet­i­tive,” Clive T. Johns on, c hief e xec­u­tive of B2Gold Corp., told the Fi­nan­cial Post about the state of the gold in­dus­try. “There’s go­ing to be more com­pe­ti­tion ( to ac­quire) some of these as­sets.”

John­son said his com­pany used the past five years to ac­quire prop­er­ties for its pipe­line, and is now fo­cused on de­vel­op­ment and pro­duc­tion.

This week, B 2 Gol d , whose stock is up 12.2 per cent to $ 3.84 since Oc­to­ber, an­nounced it pro­duced 630,000 ounces of gold in 2017, set­ting a new high for the Van­cou­ver- based com­pany with its flag­ship Fekola mine in Mali. B2Gold is fore­cast­ing that 2018 will be “trans­for­ma­tional,” and that its an­nual gold pro­duc­tion could grow 50 per cent to as high as 950,000 ounces.

That would put its gold pro­duc­tion in league with Ya­mana Gold Inc., an­other com­pany that ex­ceeded its 2017 guid­ance, pro­duc­ing 977,000 ounces — in ad­di­tion to 5 mil­lion ounces of sil­ver and 127 mil­lion ounces of cop­per.

The Toronto- based com­pany also said in a press re­lease on Thurs­day that its Cerro Moro gold and sil­ver mine in Ar­gentina will be­gin pro­duc­ing by mid-2018, although Ya­mana does not give full guid­ance for the up­com­ing year un­til Feb. 14.

On Thurs­day, it was one of sev­eral gold com­pa­nies that The Cana­dian Im­pe­rial Bank of Com­merce an­a­lysts spot­lighted in a note to investors.

They in­creased the 12- to 18- month price tar­get for Ya­mana from US$ 3.25 to US$ 3.75 based on the rise in spot gold prices. It is cur­rently trad­ing at US$3.44.

The CIBC an­a­lysts also com­mented on Toron­to­based Alamos Gold Inc., which this week posted a 10 per cent in­crease in gold pro­duc­tion in 2017 at 429,000 ounces, its high­est ever, and fore­cast 2018 pro­duc­tion at the high end could hit 520,000 ounces.

Although Alamos said cap­i­tal ex­pen­di­tures in 2018 could ex­ceed US$ 300 mil­lion as it seeks to de­velop a mine in Turkey — far above CIBC’s es­ti­mate of US$ 205 mil­lion — the an­a­lysts re­it­er­ated their “out­per­former” rat­ing.

“We don’t see the higher capex in 2018 as an is­sue, as it is a re­sult of tim­ing ( in Turkey) and higher al­lo­ca­tion to the ex­plo­ration bud­get, which should both yield fu­ture ben­e­fits,” CIBC an­a­lysts Cos­mos Chiu and Kevin Chiew wrote.

Still, many of the in­dus- try’s heavy hit­ters have not yet re­leased their fourth quar­ter pro­duc­tion num­bers, and even those that have do not re­lease earn­ings un­til later this month or Fe­bru­ary.

Bar­rick Gold Corp., for in­stance, has not yet re­leased its full 2017 pro­duc­tion, and in the third quar­ter, low­ered its high end gold pro­duc­tion from 5.6 mil­lion to 5.5 mil­lion ounces. Its an­nual gold pro­duc­tion has de­clined for con­sec­u­tive years, and the com­pany pre­vi­ously said it aims to re­duce debt in 2018 from $ 6.4 bil­lion to $ 5 bil­lion.

Although B2Gold’s John­son said his com­pany is mov­ing out of an ag­gres­sive ac­qui­si­tion mode, there are still merg­ers in play. On Fri­day, Van­cou­ver- based First Ma­jes­tic Sil­ver Corp. an­nounced it will ac­quire the gold and sil­ver- fo­cused Primero Min­ing Corp. for $320 mil­lion. Primero shares jumped 125 per cent on the news, but First Ma­jes­tic de­clined 3.5 per cent.

The deal gives Mex­i­co­fo­cused First Ma­jes­tic pos­ses­sion of Primero’s San Di­mas prop­erty in Si­naloa, an over 100- year old mine that through the first three quar­ters of 2017 pro­duced 99,000 ounces of gold equiv­a­lent and 2.64 mil­lion ounces of sil­ver.

As part of the agree­ment, First Ma­jes­tic also agreed to re­struc­ture Primero’s ex­ist­ing sil­ver stream­ing agree­ment with Wheaton Pre­cious Met­als Corp., so that it will in­stead re­ceive 25 per cent of gold pro­duc­tion plus more than 20 mil­lion shares of First Ma­jes­tic worth $ 151 mil­lion in ag­gre­gate.

IT’S GO­ING TO GET MORE COM­PET­I­TIVE.

CHRIS RAT­CLIFFE / BLOOMBERG

Gold was trad­ing at US$1,338.39 per ounce on Fri­day, a four-month high driven by strong pro­duc­tion out­looks and loftier price pre­dic­tions.

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