23/11/2020 - 11:38

Investing in Gold? Where to from here…

23/11/2020 - 11:38

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With gold prices hitting all-time highs this year, it’s no surprise Western Australian activity within the resources sector is skyrocketing; but how can junior miners ensure they are future proofing for sustainable growth?

With gold prices hitting all-time highs this year, it’s no surprise Western Australian activity within the resources sector is skyrocketing; but how can junior miners ensure they are future proofing for sustainable growth?

According to investment and wealth management firm Shaw and Partners WA State Manager, Davide Bosio, the answer lies in both exploration and acquisitions.

Mr Bosio said it was currently an interesting period within the resources sector and the pandemic had a big part to play.

“When you look at the broad market in terms of the pandemic and the significant amount of stimulus that is going into global markets, this sets a very strong theme for gold,” Mr Bosio said. “We have seen significant

stimulus, which is more than likely to continue, and this has put a rocket under the gold price for the longer term.”

In times of uncertainty, volatility or crisis, when the value of the dollar becomes destabilised; it’s natural for gold to become a safe haven.

Low real interest rates are often correlated with a positive gold price, further supporting the fundamental rationale for investors to consider gold as an investment.

As at August this year, the gold price hit a historical peak of AUD$2,843.98 per ounce, up 34% since the beginning of the 2020.

“When you’re an existing gold producer with a strong balance sheet and healthy share price, you are loved by the markets but as you mine your de- posits, your gold reserves are depleting,” Mr Bosio said.

“The challenge is, what do you do next to replace these reserves?”

Exploration on the rise

Mr Bosio advises the landscape lends itself to one of two things; finding more ounces or buying more ounces - exploration or acquisition.

According to the Australian Bureau of Statistics, gold exploration in West- ern Australia increased significantly to more than $209 million in the June 2020 quarter.

“Firstly, we’re seeing a lot of money put into exploration, with companies being rewarded for successful discoveries,” Mr Bosio said.

“And secondly, if you have an established company that has proven re- sources or reserves, you become very valuable to the next tier of gold miner looking to acquire unmined ounces.”

Mr Bosio said one way for these companies to guarantee extended life of mine would be to identify the next suite of companies they can potentially acquire or merge with, which have done the hard exploration work for them.

Last month’s  merger of Northern Star and Saracen, following their joint acquisition of the Kalgoorlie Super Pit in December 2019, is a prime example of this.

Mr Bosio said mergers and acquisitions within the sector were only going to continue to ensure security and growth for junior and mid-tier miners.

“This year we’ve seen Ramelius Resources $200m takeover of Spectrum Metals, Aurenne Ularring $50m take- over of Alt Resources and the ongoing takeover battle between Nordgold and Shandong for Cardinal Resources; and I think we’re going to see many more deals such as these,” he said.

Growing the Western Australian market

In August 2019, Perth-based broking firm DJ Carmichael merged with the Sydney-headquartered Shaw and Partners with the aim to strengthen the firm’s existing advisory team in WA and to further grow it’s national footprint.

Mr Bosio, who was previously the DJ Carmichael chief executive, said the merger meant Shaw and Partners was in an ideal position to better support its Western Australian clients, including  junior miners, helping them access more capital across a broad investor base as they drive their exploration programs forward.

“We have the backing of Swiss investment bank EFG International as our major shareholder, a vast advisor network and offices in every state,” Mr Bosio said.

“We are a genuine national wealth manager with a very large retail and professional client base.

“Our advisers manage a lot of capital with circa $20 billion of assets under management now across our network.” Mr Bosio said he was excited about Shaw and Partners’ ability to help fund and support its corporate clients, from smaller, early stage companies through to developers and large cap producers. “If you look at success stories like Black Cat Syndicate (ASX:BC8), we led the IPO of the Company in 2018 and have helped them a number of times since listing,” he said.

“The Company made a significant discovery early on and we recently raised $10 million to move the focus from explorer to developer.”

Mr Bosio said Shaw and Partners had a deep understanding of exploration in the context of WA.

“As these explorers do achieve success, we have the capability to assist their progression with corporate advice and capital,” he said.

“We seek genuine partnerships and long term relationships with our corporate clients, something we consider to be truly unique in WA.”

 

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