- Investing in gold has proved rewarding in the recent times, with equities crashing and economies faltering
- Many of the gold stocks have yielded tremendous returns in Year till Date as price of gold has hit all-time highs
- The gold mining has always been a complicated business with many unseen uncertainties that might come in to play in near or in the long-term horizon
- Gold mining companies are maintaining a positive outlook for the Gold price and the overall sector despite the recent market turbulence
Gold stocks have the propensity to leverage upon the price of physical Gold, which means that when Gold steers higher, then gold stocks can deliver better returns.
So, performance of Gold stocks to an extent is underpinned by the price of gold as a commodity. The price of gold has hit all-time highs in August (broke the barrier of $2000 per ounce) followed by a fairly sharp reversal of around $200 (10 per cent down) from those highs and has stabilised since then.
(Source: Refinitiv, Thomson Reuters-1Year Price Chart for Gold)
Is the top already in or this weakness is just a pullback before the next all-time high?
The precious metal has returned nearly 30 per cent in terms of price in the last six months. The volatility in August punched out to all time high around about $2075 per ounce on 6 August, and then it reversed a couple of hundred dollars a week later. There are a few things that has been driving gold prices such as a weakened dollar plus ongoing investor fears about the coronavirus pandemic and its overall impact on the economy along with prevalent uncertainties due to Brexit.
Although, the British government is doing its best to revive the economy, the total debt for British government has crossed £2 trillion in July 2020, rising by £227 billion as compared to July 2019, as per the data released by Office for National Statistics (ONS). In addition, the UK’s economy is now officially into recession. There is a lot of uncertainty with respect to the economic outlook and it is still difficult to assess the impact of the deadly pandemic on the overall economy.
Thus, it is important for investors to identify the next opportunity, as gold has played a part as a ‘safe haven’ in comparison to other forms of investment. Though, gold mining has always been a complicated business with many unseen uncertainties that might come in to play in near or in the long-term horizon given the current circumstances. This means that the prices of gold stocks might not always go in sync with the price of physical gold.
Here, we would discuss how is the needle moving on three gold stocks listed on the London Stock Exchange (LSE).
Greatland Gold Plc
London Stock Exchange AIM-listed, Greatland Gold Plc (LON: GGP) is a natural resource exploration business which has a current focus on precious metals such as Gold.
During the first six months of the financial year, with the gold price reaching all-time highs in most currencies, the general commodity and financial market conditions gradually improved. The Company maintains a positive outlook for the Gold price and the overall sector despite the recent market turbulence. All major projects owned by the company are in a low-risk mining jurisdiction, Australia.
The Company is likely to pursue a targeted exploration programme across its key projects over the course of next few months as it is well financed with £4 million in cash (as of 31 December 2019) along with an additional liquidity of £2 million.
- Havieron project has established itself as a significant gold-copper discovery during the first half of the financial year 2020
- Newcrest accelerating exploration: excellent, high-grade results from Newcrest drilling between July 2019 and January 2020
- The Group commences drilling at Scallywag: high-priority targets including Kraken, London, and Blackbeard
- The company is well capitalised to push forward with Paterson exploration programmes in 2020 and has successfully raised £4.2 million in a strategic financing to accelerate exploration in the Paterson region. The company has identified over a dozen targets in the region for 2020
The AIM listed group, with ticker symbol “GGP” has been trading at GBX 16.45, up by 5.45 per cent, as of 2 September 2020 (12:26 PM GMT+1). The company has given a price return of nearly 750.00 per cent on YTD basis, despite the economic disruption caused by the coronavirus pandemic.
FTSE AIM All-Share index listed Goldplat Plc (LON: GDP) is a UK based mining company, which is engaged in gold exploration and production. The Company is into projects of gold recovery in South Africa and Ghana. It also has an underground mining operation in Kenya.
- The company expects to report a profit in FY20. The Company's operations remained obstructed due to the lockdown in South Africa, though the operations have now resumed.
- Goldplat's subsidiary Goldplat Recovery Limited (GPL) reported an operating profit of £2,067,000 in the fourth quarter of 2020 and £5,511,000 for full-year 2020
- Gold Recovery Ghana Limited (GRG) generated an operating profit of £280,000 in the fourth quarter of 2020 and £638,000 for full-year FY20
- The company is well placed with Cash and cash equivalents of £3.2 million as at 30 June 2020
The LSE listed group, with ticker symbol “GDP” has been trading at GBX 7.75, down 0.64 per cent as of 2 September 2020 (12:39 PM GMT+1). The company has given a price return of nearly 225 per cent on YTD basis, despite the economic fallout caused by the deadly pandemic.
FTSE 250 listed Petropavlovsk Plc (LON: POG) is a Russian gold miner, which is engaged in the mining of precious and non-precious metals. During Covid-19 pandemic in the H1 FY20, the operations of the company have shown resilience and registered a remarkable level of gold production and sales, which generated substantial cash to reduce the net debt level.
- According to the first half trading update of 2020, the Gold miner recorded a 42 per cent increase in total Gold production during the period to 320.6 kilo ounces (koz) (H1 FY19: 225.0 koz)
- In addition, there was a whopping 39 per cent increase in total Gold sales recorded at 312.4 koz during the first half of 2020 (H1 FY19: 225.0 koz)
- The average realised Gold prices were up by 27.53 per cent to US$1,640/oz in the first half of 2020 (H1 FY19: US$1,286/oz)
- Moreover, the construction of a new flotation facility at Pioneer remained on schedule, and the plant is expected to be fully operational by Q4 FY20.
(Source: Company’s presentation)
While writing on 2 September, at GMT 01:00 PM+1, before the market close, POG shares were trading at GBX 36, down by 2.04 per cent from the previous day closing price. The stock has delivered a price return of 188.50 per cent on YTD basis.
Comparative chart: GGP, GDP, and POG
(Source: Refinitiv, Thomson Reuters-1Year Chart)
Gold investments are considered as a way of storing value which can be harvested during the crucial times. Including Gold stocks in one’s portfolio could provide the investor with a hedge during uncertain times. With geopolitical challenges such as Brexit deadline round the corner coupled with coronavirus induced crisis can present huge systematic risks for one’s portfolio. Though, gold stocks, could be volatile sometimes, due to the risks in nature of business and industry, but can be considered for investing.