The recent rise in prices have caused some gold mining companies we will see lower quality gold mines being built to relax their standards for financial and operating discipline. With higher gold prices. These are deposits that were not economic at lower prices because they would have high operating costs and/or high capital costs due to low-grades and/or mining challenges.
The industry is beginning to bifurcate between dividend-paying companies with high quality, low cost mines and those with lower quality projects and higher risks. Until there is confirmation that higher gold prices are here to stay, it seems too early in this cycle to speculate on companies that aren’t maintaining the discipline learned from the mistakes of the last cycle.
MVIS Global Junior Gold Miners Index vs. Gold Price
Source: MV Index Solutions GmbH. Data as of 31 August 2020.
About the Author:
Joe Foster has been Portfolio Manager for the VanEck International Investors Gold Fund since 1998 and the VanEck – Global Gold UCITS Fund since 2012. Mr. Foster, an acknowledged authority on gold, has over 10 years of dedicated experience in geology and mining including as a gold geologist in Nevada. He has appeared in The Wall Street Journal, Financial Times, Barron's, and on Reuters, CNBC and Bloomberg TV. Mr. Foster has also published articles in a number of mining journals, including Mining Engineering and Geological Society of Nevada.
The article above is an opinion of the author and does not necessarily reflect the opinion of MV Index Solutions or its affiliates.