After a torrid two years for gold, there are several emerging trends of interest, which Charles Gibson, head of Edison’s mining team, discusses in this interview. Although the Fed has tapered its QE programme, less than a third of the dollars created have made their way into the real economy, and seepage of the remainder from the balance sheets of financial institutions could bring further inflation to the dollar and strengthen the gold price. The ECB has gone down the same route which supports our view. Charles also looks at what has happened to gold mining equity valuations in a preview of his next sector piece. With explorers trading on around 1% of the value of gold for every ounce they have discovered, a return to historical norms would see major re-ratings across what is now a much fitter segment than it was two years ago.
Silver Wheaton (SLW) is the world’s pre-eminent precious metals’ streaming company, with 24 streaming agreements. Since its creation and listing in 2004, it has recorded a 39.4% compound increase in silver sales pa, an 81.4% pa increase in earnings, a 55.4% pa increase in basic EPS and a 58.7% pa increase in operating cash flows. In particular, it offers exposure to exploration success and production expansion without exposure to cost inflation. It also pays a dividend, has geared exposure to precious metals prices and optionality provided by major projects such as Barrick’s Pascua-Lama. Despite this, Silver Wheaton trades on a rating that is uniformly cheaper than its royalty company contemporaries and is often little different to those of major mining companies, despite its having a materially lower risk profile.
In this programme, Edison’s head of mining, Charles Gibson discusses what Silver Wheaton actually does, the returns it makes and how if differs from other precious metals and mining investments, both in terms of the returns it offers to investors and its (generally significantly lower) risk profile.
The global uranium sector has been under immense pressure for the past three years since the Fukushima disaster. Investors are looking for catalysts to drive the market forward.
The main catalysts for the sector are Japan restarting some of its reactors (while the government has indicated the willingness to do so, the market is waiting for at least one reactor to be switched on); China's nuclear energy expansion is expected to grow significantly by 2020; and the end of the HEU agreement in 2013 will put added pressure on producers to meet current and future demands.
With the price of gold down by almost a third over the course of the past year and the Fed announcing the start of QE tapering, the question on everyone’s lips is, "What next for the yellow metal?"
In this interview Charles Gibson (Sector Head, Mining) rationalises the two predominant monetary theories for estimating the future, long-term price of gold into a coherent conclusion. In so doing, he also draws some conclusions about general prices, interest rates, debts and longer-term inflation.
Zanaga Iron Ore Company is a JV partner (50% less one share) in the Zanaga project, a large-scale iron ore project in Congo (Brazzaville), which is managed by Glencore Xstrata.
Andrew Trahar (head of corporate development) discusses how the Zanaga project is now at the cusp of a critical milestone – delivering the feasibility study and moving into the mining licensing phase. He mentions the advantageous 2013 merger with Glencore Xstrata, one of the largest mining companies in the world and an experienced operator in Africa, which now manages the project. Moving into 2014, he highlights that the key short-term catalysts and value drivers for investors are the completion of the feasibility study, the granting of a mining licence and further progress on strategic partner negotiations.