Chicago, IL – June 24, 2015 – Today, Zacks Equity Research discusses the Gold Mining (Part 2), including Goldcorp Inc. (GG), Newmont Mining Corporation (NEM), AngloGold Ashanti Ltd. (AU), Alamos Gold Inc. (AGI) and AuRico Gold Inc. ( AUQ). Industry: Gold Mining (Part 2) Link: https://www.zacks.com/commentary/48900/shine-your-portfolio-with-these-gold-mining-stocks Historically, gold never seems to fall out of favor. Its attributes -- malleability, resistance to corrosion and tarnishing and of course glitter -- makes it ideal for all kind of jewelries. But that’s not all, because gold is also a ripe investment option. Gold investors buy gold bullion and official coins as a hedge against inflation or a safeguard against the collapse of paper assets such as stocks, bonds and other financial instruments. Even though gold seems to have lost its luster in recent times as an investment option, it has recently picked up steam. That’s helping the gold mining industry as well. There are plenty of reasons to be optimistic about the gold mining industry for both the short and the long term. Below, we have discussed some of the key reasons and what investors in the gold mining sector can look forward to in the coming months and years:
Growth in India and China
Over the last decade, combined demand in India and China has grown 71%. Last year, these two markets accounted for 54% of consumer gold demand, up from 33% in 2005. India has a strong tradition of investing in gold, mainly in jewelry. Demand mostly peaks around the wedding and festive season in India, which begins in mid-to-late August and continues until January. Gold accounts for 30% of total wedding expenditures. This increases the local currency’s demand and price during the wedding season. In China, people view gold -- whether in the form of bars, coins or jewelry -- as a natural vehicle for savings and diversification.
The first quarter saw a 22% increase in Indian jewelry demand. The outlook for the sector remains healthy, particularly given upward revisions to GDP growth and retail demand which continues to be supported by festive buying. Even though China’s jewelry demand was down 10% in the quarter, it exceeded its five-year quarterly average by 27%, confirming that the long-term outlook remains intact. A continuous shift toward higher-margin products has been observed lately in China’s jewelry market. Gem-set and 18-carat gold items are becoming increasingly popular, with the latter largely occupying the attention of the younger generation and showing further potential for 2015.
The World Gold Council expects demand from China to grow at least another 20% by 2017. Over the span of five years, China’s middle class will grow from 300 million to 500 million. India also has a comparatively low level of per capita gold holdings. The powerful combination of increasing urbanization and strong cultural affinity for gold bodes well for the metal’s demand in India and China.
Moreover, the development of Singapore as a regional hub will facilitate the flow of gold within these markets. With its proximity to Singapore and China, India and its neighbors are also likely to contribute to the growing importance of the Asian region as a whole.
Growing Trend in the U.S.
The U.S. witnessed its third consecutive year-on-year increase in jewelry demand in the first quarter with rising household wealth and economic growth providing support. Some promising trends continue to emerge: a continued shift from 10-carat toward 14-carat jewelry, and responsiveness among consumers to targeted marketing campaigns. Growth in consumer confidence and the slump in oil prices are likely to lead to further improvements in this market over the coming quarters. Retailers report a widespread conviction in the underlying growth trend.
Revival in Acquisitions
As gold prices rebounded in early 2015, a flurry of M&A activities were noted. One of them being Goldcorp Inc.’s ( GG) eye-catching all-stock deal valued at $526 million to buy Toronto’s Probe Mines Ltd. and scoop up one of Canada’s most promising new gold discoveries in northern Ontario. The deal will give Goldcorp control of the highly-touted Borden gold project near Chapleau, Ontario. This transaction is in line with Goldcorp’s longstanding strategy of securing growth opportunities in and around its existing districts with a focus on low-cost, high-quality gold production.
Newmont Mining Corporation (NEM) will pay $820 million for AngloGold Ashanti Ltd.’s (AU) Cripple Creek & Victor mine in Colorado. The deal represents a value-accretive opportunity for Newmont to improve mine life and costs in a favorable jurisdiction. The company expects to lower direct mining costs by up to 10%. For AngloGold, the sale is a significant step forward in strengthening its balance sheet by cutting debt. AngloGold will also save $200 million from mine expansion spending it will no longer have to incur.
Canadian mid-sized miners, Alamos Gold Inc. (AGI) and AuRico Gold Inc. ( AUQ) have inked a U.S. $1.5 billion friendly deal to merge. This creates a significant mid-tier producer that can withstand the ongoing low gold prices while cost synergies from the merger will help lower costs.
Gold Miners Optimizing Portfolios Drop in gold prices has put the gold mining companies' bottom lines under pressure. The companies are actively pursuing opportunities to optimize their portfolio, including the divestiture of certain non-core or non-productive assets and reducing debt, maximizing return on capital and driving value across the portfolio.
Newmont Mining continues to focus on its core assets that have longer life with lower cost. Newmont has sold assets worth nearly $1.5 billion over the past two years and has lowered its all-in sustaining costs by 18%. These divestments have improved the company's financial flexibility and placed it in a better position to finance profitable operations. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report GOLDCORP INC (GG): Free Stock Analysis Report NEWMONT MINING (NEM): Free Stock Analysis Report ANGLOGOLD LTD (AU): Free Stock Analysis Report ALAMOS GOLD INC (AGI): Free Stock Analysis Report AURICO GOLD INC (AUQ): Free Stock Analysis Report To read this article on Zacks.com click here.
|