19/03/2008 - 22:00

WA junior gold miners buoyed by soaring price

19/03/2008 - 22:00


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Smaller gold miners in Western Australia are set to capitalise on the soaring gold price, which has not even come close to the real highs of the 1980s.

Smaller gold miners in Western Australia are set to capitalise on the soaring gold price, which has not even come close to the real highs of the 1980s.

Gold’s meteoric rise past the $1,000 per ounce mark last week could have some gold bulls saying I told you so, with analysts thinking that $2,000/oz could become a reality.

ANZ commodities analyst Mark Pervan said gold could reach $1,100/oz in the next week or two, as the market continued to back the precious metal ahead of the bank reporting season in the US.

“The key drivers continue to support it and that’s been increasing worries about the US dollar and also news like Bear Stearns,” Mr Pervan said.

“Gold’s rise depends on the currency, the US dollar is already oversold …so you have a situation where there’s a hell of a lot of negative news already priced into the currency market, or the US dollar, which is then being flowed through positively into gold.” While no ceiling has yet been forecast for the gold price, Mr Pervan added that while records were tumbling, the gold price has not come close to its high of $2,450/oz, which was set in January 1980.

Mr Pervan said the real term price of gold was calculated in a retrospective manner using today’s spot gold price as well as inflation numbers.

While there is still a way to go for gold to match its real term highs, Fat Prophets analyst Greg Canavan said the increasing price is a boon for smaller gold miners which have had to deal with inflationary costs such as energy, labour and raw materials.

“I think now with the gold price moving in excess of $US1,000 that will really divert attention back on the miners and I think their margins will tend to expand from here on out,” Mr Canavan said.

One WA gold miner confident of gold staying above the $A1,000 mark is Monarch Gold Mining Ltd.

The company recently said its cash costs for the Davyhurst gold mine were expected to fall below $700/oz by the end of the year, under the budgeted $875/oz.

Mr Canavan said that while some gold stocks will revel in fresh interest, he warns investors not to put all their eggs in one basket in light of gold miner View Resources’ fall into administration earlier this year.

“It just goes to highlight the real difficulty in mining gold.

I mean, gold mines are not an easy thing to do, it costs a lot of money, you’ve got to get a lot of things right,” he said.

“I guess it really reinforces the fact that if you’re investing in gold companies, you really need to diversify.” View Resources entered into voluntary administration last month after announcing that its gold operation, the Bronzewing mine, was unlikely to meet quarterly production targets.

The mine has been placed on care and maintenance as administrators Ferrier Hodgson restructure the company.


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