Brexit And Its Impact On The Global Gold Markets

Brexit And Its Impact On The Global Gold Markets

Brexit has brought about an unprecedented situation in all of London’s trading markets. The high voltage political drama of the past several months has left traders, investors and the general public in a state of utter dismay. With no certainty of what the trading environment will be in the near future, no one is willing to take any position. The result, a weak financial market and a weak commodity market further exacerbated by a weak pound sterling. Usually, under such circumstances Bullion, in particular, is seen as a safe haven and the price of this metal have long been observed to exhibit a negative correlation with the equity markets.

Investors usually purchase gold as an instrument of diversifying risk, with futures contracts and derivatives being the preferred route. The market for this metal is, however, subject to speculation and volatility like any other commodity markets. However, when looked at in comparison to other important metals of investment-grade, this metal stands out as the most trusted safe haven and an excellent hedging property.

Gold, like all other investment grade metals, finds extensive usage as a hedging instrument against inflation, deflation or currency devaluation, though its efficacy as such has been questioned on several occasions. Historically, it has not proven itself to be an efficient but not a perfect hedging instrument. A unique feature of gold is that it has no default risk, unlike any other financial instrument which must be backed by some sort of guarantee, this commodity is a guarantee in itself.

The metal has also historically benefited from flight-to-quality inflows during highly volatile periods. While reducing portfolio losses, the metal also provides positive returns.  gold especially is an effective hedging instrument during times of financial crisis when people tend to draw back from equity markets. The metal also helps investors and traders in time of crisis to meet their financial obligations with ease while other less liquid assets may be undervalued and possibly mispriced.

The price of this metal on the London markets have been on an upward trend since May of 2019, reaching a high in September of 2019 before cooling down a bit. It is to be noted here that the volatility of news filtering of a no-deal Brexit and trade war between China and the United States during this time were at their worst. This clearly demonstrates the metal’s importance as an instrument of a hedge.

During 2020 and beyond, many of the global dynamics that have rooted itself over the past two years and the risks that became apparent thereon will carry over. These dynamics will branch out and will set out multiple developing trends that will be key in determining the metal’s future demand and pricing behaviour. These trends and their interplay, however, will be most relevant for the metal’s short-term price behaviour compared to its long-term price behaviour.

Pure Gold Mining Inc.

Pure Gold Mining Inc. is a Canadian company engaged in mineral exploration and development with a focus on Gold. The company is engaged in the acquisition, exploration and production in mines of gold mineralizations or interests in corporations controlling mineral properties. The company’s flagship project is the Madsen Gold Project, which is located in Northwestern Ontario, Canada in the Red Lake greenstone belt. The site has hosted several other past mining ventures and still promises to hold significant mineralised deposits of the bright metal.

A central focus and achievement for Pure Gold's exploration team over the past four years have been building of a predictable gold continuity and expanding the scale of the high-grade Madsen gold complex.  During that period, resource growth and transformative discoveries have been made at the Austin, McVeigh, Russet South, Fork and Wedge zones, which are all part of one semi-continuous, coherent gold system, although referred to by different names,

The shares of the company are listed on the main market segment of the London Stock Exchange, where they trade with the ticker name PUR.

Update on the drilling programme

The company on 9 October 2019 came out with an update on the drilling operations being carried out at the Madsen Gold Project in Northwestern Ontario in Canada.

  • The company has announced that it has intersected gold mineralisation in a widespread gap midway between its high grade 8 Zone at the depth and near the surface of the Russet South mineral resources, clearly establishing the need of setting up and opening a brand-new target area for exploration.
  • At the 8 Zone at depth, this mafic-ultramafic contact contains some of the highest grades of minerals ever drilled at Madsen including 466.0 g/t over 4.3 metres, including 3,262.5 g/t over 0.6 metres, and 342.4 g/t over 5.5 metres, including 4,739.3 g/t over 0.4 metres.
  • The newly developed Russet south zone is also characterised by very high-grades of gold including 76.6 g/t over 2.1 metres and 39.1 over 2.9 metres.
  • The company, with the continued success of the exploration program, has expanded the 2019 drill program to a depth of 20,000 metres, with two surface rigs currently in active service. A third rig will commence operations in late November to begin production level underground drilling in long-hole stopes scheduled for development early in the mine life
Stock performance at the London Stock Exchange

Stock performance at the London Stock Exchange

Price Chart as on 24 October 2019, before the market close (Source: Thomson Reuters)

On 24 October 2019, at the time of writing the report (before the market close, GMT 11.37 AM), PUR shares were trading on the London Stock Exchange at GBX 34.77.

The stock of the company has touched a 52-week High of GBX 47.40 and a 52-week low of GBX 30.00. The total market capitalization of the company at the time of writing the report was £126.09 million.

Outlook

The Madsen project of the company is a highly lucrative venture, with resource and production potential way above the feasibility base case scenario. Going beyond proving the feasibility of the Madsen project the company also has made multiple new mineral resources discoveries within a system that keeps expanding by the day.

Chaarat Gold Holdings Limited

Chaarat Gold Holdings Limited is a British Virgin Islands domiciled mining and mineral exploration company with a particular interest in Gold. It owns the Kapan operational mine in the country of Armenia as well as the Tulkubash and Kyzyltash Gold Projects in the country of Kyrgyzstan. The company is currently working with an objective of building a leading emerging markets gold company, which will initially be focused on Central Asia and the FSU growing organically and through selective merger and acquisitions.

The shares of the company have a listing on the AIM (Alternative Investment Market) segment of the London Stock Exchange bearing the ticker name CGH.

Production and operation Update

The Company on 21 October 2019 came out with its production and operations update for the third quarter period of 2019.

  • During the third quarter of 2019, the company had a total recordable injury case rate (per one million hours worked) of zero, which is the best by industry standards. Since the company took ownership in January, it has had only one Lost Time Injury ('LTI').
  • A positive EBITDA contribution made by the Kapan mine in third quarter of 2019 was USD3.6 million versus USD3.2 million contribution realized for the initial five-month period of control (February to June 2019) this has been achieved on account of improved recoveries, better plant utilization and increased mining rates under the company’s leadership.
  • The realized third quarter price for gold was USD1,474 /oz vs USD1,306 /oz realized during the second quarter of 2019.
Stock performance at the London Stock Exchange

Stock performance

Price Chart as on 24 October 2019, before the market close (Source: Thomson Reuters)

On 24 October 2019, at the time of writing the report (before the market close, GMT 10.57 AM), CGH shares were trading on the London Stock Exchange at GBX 38.0.

The stock of the company has touched a 52-week High of GBX 28.40 and a 52-week low of GBX 17.62. The total market capitalization of the company at the time of writing this report was £167.15 million.

Outlook

The company is very well on track to achieve the target of producing 65 Koz of gold equivalent ounces per year and an annualized EBITDA of USD 20 million by the end of the year. This is on account of continuous improvements on all the workstreams of the company.

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