Is there a new pre-eminent London listed gold producer post Barrick-Randgold?
Abraham Darwyne
Market Commentary
16:05, 11th March 2019

The Barrick-Randgold merger saw the shares of Randgold cease to trade on the London stock exchange, and so as earnings season approaches, it is worth taking another look at the some of the biggest gold producers listed on the LSE.

Why gold?

Gold has a rich legacy and past, and this is an era of cheap money and low interest rates. It has long served as a hedge and a store of value for individuals and institutions alike. Interestingly, since 2009, central banks themselves have been annual net buyers of gold.

However, central bank buying in 2018 saw the second highest annual total of gold bought by central banks ever recorded. This was the largest amount since Nixon’s decision to end the dollar peg in 1971.

Geopolitical uncertainty and recession fears drove central banks to diversify their reserves and “re-focus on their principal objective of investing in safe and liquid assets”, according to a report by the World Gold Council.

After all, 2018 did indeed prove to be a volatile year for equity markets. It saw the S&P 500 experience two corrections before finishing the year down 6.24%. The FTSE experienced a decline of 12.5% and the DAX closed the year 18% lower.

Coincidently, 18% of central banks said they planned to increase holdings of allocated gold bullion over the next 12 months, but 2018 gold mine production was reportedly only up 1%.

Goldman Sachs Group predicts the precious metal could see $1425 an ounce, a strong resistance level not seen in 5 years, which could see it break through a major psychological barrier and trade even higher.

Why follow gold producers?

A bullish case for gold could also drive gold producing equities higher. Gold mining companies provide a leveraged exposure to increased sales revenue from increased gold prices. They also provide exposure to hard cash generating assets, and any associated hedging benefits.

However, it is play on each individual company strategy, and the ability of management to execute. Provided the execution is there, investors can be rewarded with a dividend and any associated share price appreciation.

Now that the Randgold management team are now no longer listed on the London Stock Exchange, it is worth taking a look at how other senior gold producers have performed in 2018.

Below is a snapshot look at 2018 performance of the 6 largest gold producers listed on the LSE:

2018

Polyus

Polymetal

Fresnillo

Hochschild

Acacia

Centamin

Production (oz)

2,440,000

1,562,000

922,527

526,650

521,980

472,418

ASIC ($/oz)

605

861

1083

931

905

884

Price/Free Cash Flow

14.2

29.6

-93.1

14.4

32.7

22.7

Price/Cash Flow

7.1

10.1

12.7

5.7

8.7

6.4

Dividend yield %

5.4

4.28

2.25

1.3

0

5.84

Net Debt/EBITDA (leverage)

1.7

1.91

2.61

2.89

-0.38

0

Cash at year end ($ million)

896

383

560

79.7

130

322.3


Polyus (PLZA)  FOLLOW was the largest gold producer by volume with the lowest all-in sustaining costs. However, with less than 18% of publicly listed shares trading hands, it may lack the liquidity it needs for investors to be comfortable with. 82% of the company is held by Wandle Holdings, owned by Russian billionaire Suleyman Kerimov.

Polymetal (POLY) FOLLOW was the next largest gold producer by volume after Polyus. It had the next lowest all-in sustaining costs and paid a good dividend. It also reported robust free cash flows and relatively low leverage compared to its peers. Interestingly, it also part of a growing trend of companies making strategic decisions with environmental sustainability in mind, recently winning a sustainability award from RobecoSAM in February, and ranking highly on the MSCI ESG index.

Fresnillo (FRES) FOLLOW was the third largest gold producer. It faced headwinds in 2018, returned a dividend yield of 2.25% to shareholders and reported 15.6% lower gross profits for the year 2018. It blamed a “challenging operating environment” and expects 2019 to be “another challenging year”.

Hochschild Mining (HOC) FOLLOW, had relatively high all in sustaining costs relative to its peers, even after a year of “prudent cost control and record production”. However it told investors it has ambitious exploration plans with “exciting drill targets” at all of its operations, and expects progress from its early stage projects.

Acacia Mining (ACA) FOLLOW delivered gold production substantially ahead of its initial 2018 production guidance, and maintained relatively low all-in sustaining costs. It has low debt levels and robust cash flows. However it paid no dividend due to the ban on concentrate exports in 2017 which has affected operations at its Bulyanhulu mine in Tanzania.

Centamin (CEY) FOLLOW had the lowest production by volume amongst the group. It has zero debt, and remains unhedged to gold production from its principle asset in Egypt the Sukari Gold Mine. It had relatively average all-in sustaining costs but robust cash flows and a good 2019 outlook. It also returned a high dividend relative to its peers.

Now that Randgold is gone, gold producers eye to take the mantle of pre-eminent gold producer listed on the London Stock Exchange, of which, against a bullish gold backdrop, may prove to be an ever increasing important position.

It is worth paying attention how the gold price plays out and following the developments of senior gold producing companies as the year progresses.

Disclaimer & Declaration of Interest

The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.

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