Gold’s star quality continues to shine says Junior Gold Funds’ Damaskos
A wave of gold buying pressure should be expected in coming months, adding to the demand from European central banks, according to Angelos Damaskos, CEO Sector Investment Managers and fund advisor for the Junior Gold Fund.
It was reported by the Financial Times yesterday that the European central banks have become net buyers of gold for the first time since 1985, a clear signal of the appeal of gold and its safe haven status. This is also reflected in the price of gold bullion which recently rose from $1,500 to $1,900/oz within two months.
We expect to see the demand for and price of gold continue to increase in coming months as a result of economic and fiscal worries but also as traditionally this time of year sees a rise in purchases of gold products. Asian weddings, Christmas holidays, Chinese New Year and Asian central bank buying are some of the catalysts that could support and sustain a high price of gold.
This strength of gold bullion has not yet been reflected in the valuations of gold shares. The cashflow and profitability of producing gold mining companies has surged as a result of record gold prices and the rerating potential is obvious. Producing companies are the first beneficiaries of high gold prices and two thirds of the companies in Junior Gold’s portfolio are in production.
One of Junior Gold’s largest holdings is Kingsrose Mining, a high grade gold and silver producing company with its main operations in Southern Sumatra, Indonesia. Production is set to reach 45,000 oz of gold and 500,000 oz of silver per annum by the end of this year. With average operating costs of $150/oz after silver credits, it is a very low cost producer benefiting enormously from the current high spot prices of bullion. Production is expected to grow by over 30% in 2012 and recent encouraging exploration results should add to resources and mine life. With this year’s weak equity markets Kingsrose’s share price has been held back and is due for a significant rerating to reflect its growth in cashflow and profitability, particularly when compared to its peers. Resource addition through exploration should also be a driver of shareholder value.
Angelos Damaskos is CEO Sector Investment Managers and fund advisor for the Junior Gold Fund.