Investors get behind gold stocks

01/04/2009 - 22:00

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THE gold sector has been a standout performer during the past six months, with 13 gold explorers or producers in Western Australia launching capital raisings worth a total of $275 million.

Investors get behind gold stocks

THE gold sector has been a standout performer during the past six months, with 13 gold explorers or producers in Western Australia launching capital raisings worth a total of $275 million.

The safe-haven status attached to the metal has pushed the gold price from an average of $A600 per ounce five years ago to current prices of about $A1,300/oz, with the price starting a decisive rally after the onset of the global financial crisis last year.

This increase is in stark contrast to base metals and bulk commodities, such as iron ore, where prices have been depressed as demand softened.

Also boosting the appeal of local gold stocks was the simultaneous depreciation of the Australian dollar, which made gold margins "very attractive", according to the 2009 Hartleys Gold Book.

The sustained fall in global gold production has also helped to boost the metal's favour with investors, making it a good time for resource companies holding gold assets.

"If you're a gold company at the moment, the world is your oyster; investors want to know about you," Fat Prophets resource analyst Gavin Wendt said.

"We've seen small, medium and large gold companies all out there in the equity market raising money because that is the one sector where the cash still seems to be available."

New gold miner Avoca Resources was one of the first local stocks during the March quarter to raise above its targeted amount.

The company, which operates the Higginsville mine, raised $4 million more than its capital raising target, with the new shares priced at a marginal discount to its share price.

Since then, the capital raising amount and success rate for gold companies has been significant, with St Barbara generating $75 million, Allied Gold realising more than $30 million and Apex Minerals raising nearly $20 million.

Former nickel miner Australian Mines said it would turn its focus to gold after negotiating a $4.5 million capital raising deal with Patersons Securities.

While it's all good news for gold, investor interest in other sectors is very selective.

"Investor appetite for risk has returned over the past month," Euroz Securities chairman Peter Diamond said.

"People are returning slowly to take on an appetite of risk, but it's just pockets at the moment, not the general market."

Mr Wendt echoed that sentiment, saying while drumming up investor interest was not necessarily easier, confidence was starting to improve.

"Specific interest is starting to come back in," he said.

"Canny investors are still out there, they've still got money and they will come back to the resource sector again."

For Euroz, attracting interest from investors with cash has been slightly easier.

"There's still work out there for certain sectors," Mr Diamond said. "Companies are at super cheap prices and a lot of these raisings are done at quite discounted rates. There are a few pockets of optimism out there and a bit of transparency.

"So those companies are being supported and are taking the opportunity to tidy up their balance sheets."

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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