Gold Rush and Gold Outperformers- Northern Star, and Newcrest Mining

  • Jul 25, 2020 AEST
  • Team Kalkine
Gold Rush and Gold Outperformers- Northern Star, and Newcrest Mining

Summary

  • The gold spot has been under a bull run for quite some time, outperforming all major asset classes since the onset of the year to date.
  • The global economic recovery is morphing into a U-shaped recovery rather than a V-shaped, and all this is leading and posing only one thing for investors, i.e., market uncertainty and the possibility of a long-lasting impact of COVID-19 outbreak on the global economy.
  • Amidst some opaqueness around and slightly improved risk appetite of the investing community, ASX-listed gold stocks have emerged as top performers of the COVID-19 era, with some of them even standing tall against gold.

Gold spot has been the stallion with gold outperforming all major asset classes since the onset of the year to date. The reason behind the gold rally has been consistent, i.e., a large inflow of gold-backed ETFs and safety seekers or for hedging.

The global economy is poised to recover, which could be inferred from latest economic figures flooding into the market; however, conjointly many economic forecasts are reflecting on the fact that the recovery may come in various shapes and a lot of assumptions have been undertaken to come to that conclusion.

One thing which is common in these unprecedented times is uncertainty, and while the global economy seems to be picking a slight pace, considerable risk still lingers, especially until a cure for the COVID-19 infection is out.

The COVID-19 pandemic is having a devastating cascade effect on the global economy, and even the International Monetary Fund assesses that it would deteriorate by 4.9 per cent in 2020, causing a high level of unemployment and wealth destruction, and leading to a consensus that the global economic recovery is morphing into a U-shaped recovery rather than a V-shaped.

Furthermore, the estimated recovery in the global economic conditions by various industry experts is now showing the possibility to be short-lived due to the recurring waves of COVID-19 infections across the globe, paving the chances of a W-shaped recovery, i.e., a steep short-lived recovery followed by a setback period.

All this is leading and posing only one thing for investors, i.e., market uncertainty and the possibility of a long-lasting impact of COVID-19 outbreak on the global economy.

The reason is clear enough for gold to surface as the lifesaver for the return seeking investor; however, despite its safe-haven attributes, gold returns seem to be lagging behind what is currently being provided by many ASX-listed gold mining companies.

Also Read: Gold Vaults to Highest Levels Since October 2012; Trade Trends and Data Divergence

Primarily it is due to the slight confidence within the investing community in the equity market, which took surface during the June 2020 quarter over hopes of a vaccine.

Gold stocks are a perfect vehicle to hold an indirect dual exposure to the gold market and the equity market. ASX-listed gold stocks have not disappointed investors. A strong recovery in the equity front and an impeccable rally in the gold spot, has aided few of them to record highs and multi-period highs.

Among many gold stocks such as Saracen Mineral Holdings Limited (ASX:SAR); Newcrest Mining Limited (ASX:NCM) and Northern Star Resources Limited (ASX:NST) have been so far delivered strong returns.

Both the miners have just released their June 2020 quarterly production, which is now clearing the picture behind such a strong rally in their stock price.

To Know More, Do Read: Commodity Stocks Making Their Way To The Top

Northern Star Resources Limited (ASX:NST)

  • NST produced ~ 10.82 per cent higher gold during the June 2020 quarter at 256,472 ounces against the previous quarter.
  • The sales for the quarter reached a record of 262,717 ounces with an all-in sustaining cost (or AISC) of $1,475 per ounce.
  • The overall yearly sales also reached a record 900,388 ounces at an AISC of $1,496 per ounce.
  • The Company realised $2,208 per ounce for the financial year 2020, including sales of 271,378 ounces into hedged positions, which in turn, remained in line with NST’s aim to take a high exposure in the spot market.

To Know More, Do Read: Elevated Gold Spot Prices Transcending into Strong Financial Position for Saracen and Northern Star

  • The hedge book was reduced to 536,426 ounces, equating to just 15 per cent of the next three years’ production.

Furthermore, NST declared a fully-franked interim dividend of $0.75 cents a share, leading to a total dividend payment of $55 million.

  • During the June 2020 quarter, NST generated an underlying free cash flow of $218 million, excluding $44 million in spent on the growth and exploration.

The stock of the Company last traded at $15.500 (as on 25 July 2020), down by 2.5 per cent against its previous close on the exchange.

 Newcrest Mining Limited (ASX:NCM)

NCM achieved its FY20 production guidance despite a 12.72 per cent decline in the yearly production at 2,171,118 ounces of gold production, which remained slightly up against the lower range of the guidance 2,100,000 to 2,200,000 ounces.

  • The Company was able to meet the guidance despite a yearly production fall due to strong performance from Cadia, which exceeded the top range of its guidance.
  • However, the June 2020 quarterly production remained 7 per cent higher against the previous quarter.
  • Cadia demonstrated a strong production with record annualised mined ore and mill throughput for the quarter.
  • However, NCM realised ~ 4.90 per cent and ~ 20.56 per cent higher price on sales during the June 2020 quarter against the March quarter and in FY20 against FY19, respectively.

During the June 2020 quarter, NCM refinanced debt at a lower cost and extended the debt maturity and provided a cushion to the balance sheet with a successful equity raising.

  • The ASIC margin for the quarter reached $768 per ounce with the quarterly AISC of $878 per ounce.

The stock of the Company last traded at $34.600 (as on 24 July 2020), down by 0.50 per cent against its previous close on ASX.

In a nutshell, such an impeccable performance from gold mining companies along with a slightly improved risk appetite within the global investing community has supported many ASX-listed gold stocks, aiding them to reach multi-period highs and emerge as the top-performing asset class on a YTD basis.

 


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