Lucky goldminers gain Brexit boost; Newcrest, Evolution to profit

Just when it looked like goldminers’ run of good fortune was ebbing, along comes the Brexit.

Low fuel prices have helped goldminers shore up their costs.

Australia’s goldminers can’t believe their luck.

Just when it looked like the factors that have inspired their golden run of the past 18 months had run their course, along comes the Brexit to give them another kick along.

The market panic inspired by the growing momentum for Britain to leave the European Union has benefited the price of gold and gold stocks, both of which tend to benefit from periods of uncertainty.

Jake Klein, the executive chairman of Evolution Mining, says he is torn over the upcoming Brexit vote.

“The best result for Evolution isn’t necessarily the best result for global stability,” Mr Klein told The Australian yesterday.

“On a personal level I’d like to see the EU remain intact, but if the Brexit vote goes through it will be positive for gold.”

The biggest players in Australia’s gold sector, including Newcrest Mining, Evolution Mining, Northern Star Resources, Regis Resources, St Barbara, Saracen Mineral Holdings and Dacian Minerals have all hit fresh multi-year highs this week, helped along by the Brexit fears. The timing of the latest uncertainty has been handy for the gold space.

After a stunning run for the sector as a whole, questions had just started to emerge over just where the industry was headed from here.

The industry-wide renaissance was driven in no small part by the precipitous drop in the oil price — and by extension the diesel price — as well as the sharp deflation in labour and equipment costs thanks to the downturn in the iron ore and coal industries.

Now, however, those prices have stabilised and, if anything, they are more likely to turn against the goldminers.

The Australian gold sector’s dream run had also been built on an opportunistic merger and acquisition frenzy, as the likes of Evolution and Northern Star snapped up unloved assets from departing international majors at prices that have proven to be bargains.

That flow of deals has now ­petered out, and the broad consensus among the industry — echoed again yesterday by Mr Klein and Regis managing director Mark Clark — is that mergers and acquisitions have simply become too expensive.

Speaking at a breakfast in Perth yesterday hosted by stockbrokers Morgans, Mr Clark said it was a “difficult” market for M&A — both as a potential acquirer and as a target.

“If you want to grow your company by looking at the next one or two smaller guys in your peer set, you’d have to argue that you’re buying ounces for the sake of buying ounces,” Mr Clark said.

“All the gold stocks’ paper has appreciated very strongly so I can’t see any M&A jumping out, either for us or potentially for others. I suspect there’s not ­anyone coming for us tomorrow equally.”

While Mr Clark acknowledged that the gold bargains no longer exist, he noted that the industry had made itself more attractive to investors by getting its operating costs in order.

“Despite the fact that none of the stocks are dirt cheap right now, at least investors are looking at it on the basis that you can enduringly make money,” he said.

The industry’s almost uniform view of acquisitions today comes with the implication that, if the sector is too fully priced to justify deals, it must also be too fully priced to justify investors increasing their exposure.

Mr Klein, however, believes there is still plenty of upside to come for the sector.

“Gold is an asset class that is being increasingly focused on by investors who have been absent from the sector for the last three or four years,” Mr Klein said.

The most notable example was the move last month by legendary investment billionaire George Soros.

Mr Soros spent $US264 million ($357.4m) on a stake in North American gold giant ­Barrick Gold to reflect his belief that an economic hard landing in China was “practically unavoidable” and would hurt the global economy.

Mr Klein believes investors are increasingly attracted to and confident in the cashflow and dividends coming out of the ­sector.

Lifts in the US interest rate — which in theory should hurt gold prices — are no longer considered imminent.

Also, the fall in the gold price that followed last year’s interest rate rise proved short-lived.

“Generalist investors were absent from the gold market, but now you’ve seen some high-­profile investors get exposure to gold, you’re seeing bigger ­inflows into gold (exchange ­traded funds), and gold is getting ­inflows when other sectors are getting outflows,” Mr Klein said.