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Gold is still the safest haven — and mining companies can offer better returns than bullion

But be warned: private investors need to build up their knowledge before diving in

30 September 2017

9:00 AM

30 September 2017

9:00 AM

In times as alarming as these — with Kim Jong Un and Donald Trump waving nuclear weapons at each other — gold has traditionally been a refuge for investors. Nowadays there’s an alternative haven in the crypto-currencies that Freddy Gray writes about on the opposite page; their volatile performance this year has made gold look comparatively prosaic, up a mere 12 per cent so far. But there are good reasons to stay with the traditional insurance of gold rather than run with the Bitcoin pack— and for those looking for a better return than bullion itself, gold-mining shares are the way to go. What follows is a non-comprehensive list of major gold producers, as well as a few of the hundreds of smaller exploration and development ventures — and half a dozen ‘Buy’ recommendations. The table is ranked by scale of production but, as you can easily see, the valuations do not mirror this. A more complete comparison must take account of debt levels, reserves, ore processing costs and, of course, political risks. This really is a sector in which private investors need to do their own research and build up their general knowledge before diving in.

The biggest producers are just too big for their shares to do much more that marginally outperform bullion itself. Of course, perception of South Africa’s ‘country risk’ might change for the better, which would make AngloGold Ashanti an obvious investment. The same would be true of Shanta in Tanzania. In the meantime, the likes of Canada’s Yamana and IAM Gold, and Australia’s Northern Star, will serve the risk-averse well over the long term. But be aware that their share prices have already improved this year, reflecting the rising bullion price.


Risk and potential reward rises as we go down the list. The market is currently apprehensive about Russian production, hence lower valuations for Kinross, Polymetal and Petropavlosk. The latter produces much the same number of ounces as one of London’s favourites, Centamin, based in Egypt, which is valued more than seven times higher. But this has less to do with relative country risk than the fact that Petropavlosk is slowly paying off huge loans; when it has finished doing so, this poor swan could fly — and even approach the valuation of debt-free Centamin.

As every seasoned investor knows, the fun and games in the mining sector are to be found in smaller exploration ventures — and the key is to make sure you join the fun when the company has plenty of money to carry out its exploration drilling. But if the company gets lucky, the investor will be confronted with a double-or-quits dilemma: more financing will be needed to reach the point at which reserves are defined, and more still when production is about to commence. Centamin was a good example: the investor who held his nerve over four years as production came closer was ultimately rewarded four times over.

I’m hoping for a similar experience, or even better, with Kenadyr and Georgian, two of the more interesting smaller explorers. I hold the stocks marked with a * — not a conservative portfolio, you will note!

 

NEWMONT
PRICE (as at 22 Sept) $37.89
CAPITALISATION £million 15,976
PRODUCTION million ounces P.A 5.0
MAIN OPERATIONS US, Africa, Australia, S.America
BUY? NO
ANGLOGOLD ASHANTI
PRICE (as at 22 Sept) $9.47
CAPITALISATION £million 2,844
PRODUCTION million ounces P.A 3.75
MAIN OPERATIONS S.Africa, US, West Africa
BUY? NO
GOLDCORP
PRICE (as at 22 Sept) $12.87
CAPITALISATION £million 8,008
PRODUCTION million ounces P.A 3.0
MAIN OPERATIONS Canada, US, S.America
BUY? NO
KINROSS
PRICE (as at 22 Sept) C$5.23
CAPITALISATION £million 3,905
PRODUCTION million ounces P.A 2.5
MAIN OPERATIONS US, Russia, Africa
BUY? YES
NEWCREST
PRICE (as at 22 Sept) A$21.67
CAPITALISATION £million 9,836
PRODUCTION million ounces P.A 2.4
MAIN OPERATIONS Australia, PNG, Indonesia
BUY? NO
AGNICO EAGLE
PRICE (as at 22 Sept) C$57.67
CAPITALISATION £million 8,012
PRODUCTION million ounces P.A 1.6
MAIN OPERATIONS Canada, Finland, Mexico
BUY? NO
POLYMETAL
PRICE (as at 22 Sept) £8.26
CAPITALISATION £million 3,620
PRODUCTION million ounces P.A 1.4
MAIN OPERATIONS Russia, Kazakhstan, Armenia
BUY? NO
RAND MINES
PRICE (as at 22 Sept) £74
CAPITALISATION £million 7,030
PRODUCTION million ounces P.A 1.25
MAIN OPERATIONS Mali, Congo
BUY? NO
YAMANA GOLD
PRICE (as at 22 Sept) C$3.37
CAPITALISATION £million 1,913
PRODUCTION million ounces P.A 0.94
MAIN OPERATIONS Canada, S.America
BUY? NO
IAM GOLD
PRICE (as at 22 Sept) C$7.80
CAPITALISATION £million 2,172
PRODUCTION million ounces P.A 0.88
MAIN OPERATIONS Canada, West Africa
BUY? NO
CENTERRA GOLD
PRICE (as at 22 Sept) C$8.50
CAPITALISATION £million 1,586
PRODUCTION million ounces P.A 0.80
MAIN OPERATIONS Canada, Kyrgyzstan
BUY? YES
NORTHERN STAR
PRICE (as at 22 Sept) A$4.92
CAPITALISATION £million 1,782
PRODUCTION million ounces P.A 0.55
MAIN OPERATIONS Australia
BUY? NO
PETROPAVLOSK*
PRICE (as at 22 Sept) £0.073
CAPITALISATION £million 243
PRODUCTION million ounces P.A 0.48
MAIN OPERATIONS Russia
BUY? YES
CENTAMIN
PRICE (as at 22 Sept) £1.56
CAPITALISATION £million 1,600
PRODUCTION million ounces P.A 0.47
MAIN OPERATIONS Egypt
BUY? YES
ROYAL GOLD
PRICE (as at 22 Sept) $94
CAPITALISATION £million 3,035
PRODUCTION million ounces P.A 0.35
MAIN OPERATIONS S.America, Canada
BUY? NO
ELDORADO GOLD
PRICE (as at 22 Sept) C$2.56
CAPITALISATION £million 1,330
PRODUCTION million ounces P.A 0.30
MAIN OPERATIONS Europe, S.America
BUY? NO
HIGHLND GOLD
PRICE (as at 22 Sept) £1.63
CAPITALISATION £million 476
PRODUCTION million ounces P.A 0.26
MAIN OPERATIONS Russia
BUY? NO
LEAGOLD*
PRICE (as at 22 Sept) C$3.20
CAPITALISATION £million 286
PRODUCTION million ounces P.A 0.23
MAIN OPERATIONS Mexico
BUY? YES
HUMMINGBIRD
PRICE (as at 22 Sept) £0.35
CAPITALISATION £million 115
PRODUCTION million ounces P.A 0.13
MAIN OPERATIONS Mali
BUY? NO
SHANTA
PRICE (as at 22 Sept) £0.035
CAPITALISATION £million 28
PRODUCTION million ounces P.A 0.085
MAIN OPERATIONS Tanzania
BUY? NO
RYE PATCH
PRICE (as at 22 Sept) C$0.20
CAPITALISATION £million 52
PRODUCTION million ounces P.A 0.075
MAIN OPERATIONS USA
BUY? NO
OROSUR*
PRICE (as at 22 Sept) £0.18
CAPITALISATION £million 21
PRODUCTION million ounces P.A 0.035
MAIN OPERATIONS S.America
BUY? YES
GEORGIAN MINING*
PRICE (as at 22 Sept) £0.20
CAPITALISATION £million 24
PRODUCTION million ounces P.A Exploring
MAIN OPERATIONS Georgia
BUY? NO
KENADYR MINING*
PRICE (as at 22 Sept) C$0.25
CAPITALISATION £million 11
PRODUCTION million ounces P.A Exploring
MAIN OPERATIONS Kyrgystan
BUY? NO

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