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A good time to be a gold producer': Industry reflects on price rally in Denver

18 September 2019


Gold executives gathered at a large industry conference are celebrating a recent rally in prices as the prices on the commodity hold at near-time record highs thanks in part to concerns about world trade and the broader economy, though some expressed concern about investor confidence.


On Sept. 16 at the Denver Gold Forum, a gathering of top industry officials, companies that mine the precious metal touted plans to extract gold across the globe. Gold prices recently passed US$1,500 per ounce, a six-year high, as executives and investors speculate on whether the commodity will hold near current levels, retrace or continue to climb in the coming months as investors that are nervous about global economies contemplate an investment in a material long considered a safe investment."It's certainly a good time to be a gold producer," Alacer Gold Corp. President and CEO Rodney Antal said in his opening for a presentation at the conference.The increase in gold prices has led many gold producers to some of the widest margins they have seen in years."At the end of the day, gold is the oldest currency on the planet, and it will stay that way for a long time," Franco-Nevada Corp. Chairman Pierre Lassonde said in a keynote speech to the conference.


Still, investors remain cautious. A period in 2016 in which there was a "fake run" in gold prices that led to many fund managers investing heavily in gold only to see a bust in the commodity still weighs heavily on their minds, Sandstorm Gold Ltd. President and CEO Nolan Watson told S&P Global Market Intelligence on the sidelines of the conference. He said that while major investors will eventually become interested in the space again, it may only be after it is too late.


"All of those guys have long memories, and they're going 'I'm not falling for it this time,'" Watson said. "So the generalist investor money has not moved back into the gold market, even though the gold price has been going back up. ... I don't think you're going to see institutional investors materially start allocating capital to investing in gold mining companies until it becomes too painful to them because gold performed so well and they haven't been invested in it. When gold stocks start doubling and tripling in value and the boss goes, 'Why are you missing the benchmark,' and it's because there's this massive rally that's happening and gold and you own zero percent of it."


Several companies at the conference were insistent that the run-up in gold prices would not lead to an exaggerated supply response even as others suggested the extra cash flow could inspire new projects.

"Everyone talks about it, but we truly believe in this — that is a disciplined capital allocation framework," Dundee Precious Metals Inc. President and CEO Rick Howes said. "That is, essentially, to make sure we have a strong balance sheet and reduce our eliminate any debt and build a strong cash position."While project investment remains relatively limited, some are seeing an opportunity to bring more supply online as demand drives prices higher. Franco-Nevada President and COO Paul Brink said there are some catalysts to build up gold supply, whether that is base metal operators producing precious metals as a byproduct, intermediate companies buying up assets sold by larger producers, or moving forward with delayed projects.


"Some gold assets [that have] been sitting on the sidelines the last couple years could be ready to move into development," Brink said in a presentation at the conference. "They haven't moved forward just because they felt there wasn't the ability to raise the equity component they needed for their financing. I think moving to a stronger equity market here with $1,500 gold will allow some of those projects to move forward."Still, other companies are staying conservative and looking to other potential revenue sources beyond what recent high gold prices are offering. Wheaton Precious Metals Corp. President and CEO Randy Smallwood noted that silver remains in high demand due to its conductive properties that are useful to growing industries such as solar energy and the broader technology sector. The consumption of silver "is higher than it's ever been," and Smallwood said he does not see that changing.


"Silver, of course, has been performing well lately," Smallwood said. "But gold-silver ratios are as high as they've been over the last couple of months. I can tell you that if you go back and look over time, silver always outperforms gold. It always takes a while to get going. Gold will start to move. Then silver will outperform. It has a higher beta than gold for a lot of substantial reasons. And so I look forward to that because that will also deliver back some value to our shareholders."