Potential talking points

Geopolitical factors and waning expectations of further US rate rises this year have buoyed gold in recent weeks, which is proving to be excellent timing ahead of the Precious Metals Summit (18-20th in Beaver Creek) and Denver Gold Forum (24-27th in Colorado Springs).

The catalyst for the break through US$1300 mark was the Economic Policy Symposium at Jackson Hole, where comments from US Federal Reserve chair Janet Yellen indicated a slower pace of interest rate rises.

Odds of a December rate rise are now less than 40%.

Gold revved up further over the weekend after North Korea successfully tested a hydrogen bomb.

Escalating tensions pushed the gold price over $1345/oz yesterday.

British precious metals consultancy Metals Focus expects the rally to pick up steam from the end of this year as sentiment continued to improve.

“On Comex, after dropping to a one-and-a-half-year low in mid-July, net investor longs have since recorded five successive weeks of gains. As of 22nd August, net positions were already at their highest level since early November 2016,” it said.

“Gold ETP holdings have also recorded healthy inflows over the same period.”

Metals Focus also expects US politics to remain volatile, limiting major policy change and limiting the US economy’s ability to outperform.

The US dollar’s weakness has also seen the Australian dollar gold price back at three-month highs of A$1677/oz.

Like most industry conferences, merger and acquisition activity will also be the goal for some.

“I expect continuing M&A due to the majors’ lack of exploration success over the past few years. But with increasing political risk in countries like Guatemala, Tanzania, etc, I expect they will continue to buy ‎in Canada, US and Australia,” a Toronto-based mining analyst told MNN sister publication Mining Journal last month.

US Global Investors CEO Frank Holmes echoed this sentiment by stressing that acquisitions must be seen to be value accretive.

“If you make an acquisition and you reduce your production per share or reserves per share it is not a good acquisition,” he said.

Holmes is fresh from launching the GOAU ETF in June, a competitor to the GDXJ VanEck Vectors Junior Gold Miners ETF, which he says is evidence of how the resource investor world is changing due to the ability to automate quantitative analysis and write algorithms focusing on new metrics.

“The GOAU ETF is doing what it is supposed to do: it outperformed the GDXJ 3% during its first month. Royalty companies have the best value metrics per share. Just look at their revenue per employee,” he said.

“The quant world has discovered that most of the big write-downs are a failure of the discount rate so you don’t buy the cheapest book value. Instead you want rising book value and rising revenue momentum, the same with reserves. We also look for the junior explorers with the least G&A to reserves as these have seen the greatest bounce.”

Denver Gold Group executive director Tim Wood says that Denver Gold Forum holds a special place in the M&A process.

“Traditionally the DGF kicks off the M&A season. People come back in September from their summer vacations and this is the first chance they have of meeting face-to-face with companies, so we will see some interesting deals coming through later this year and into next, but focused on stable jurisdictions,” he said.

“In the real bull part of the last cycle the majors got into trouble by going into jurisdictions with a lot of metal but where the risks were too high.

“The industry hasn’t really figured out the balance between scale and risk and they probably would have done better going into smaller projects in safer jurisdictions, so there is a retrenchment back to safer jurisdictions.”

Interest in the precious metals space is clearly strong if the sign-ups for the two events is a gauge.

“There is a change in sentiment to the positive in the sector,” Precious Metals Summit (PMS) CEO Jessical Levental said.

“The availability of capital seems to have eased this year and we are seeing a broadening from mining investors to general resource investors paying more attention and a slight increase in the number of non-natural resource investors coming.”

The PMS has grown from 523 attendees in 2015 to 740 in 2016 and the organisers are projecting about 900 people this year. This includes 155 junior explorers [corporate] participants, up from 130 last year.

The Australian presence continues to be strong with 15 ASX-listed companies participating this year, up from 12 last year, as well as a couple of North American companies with projects in Australia.

“Interest is off the charts this year,” Levental said.

“We filled all the corporate slots in March. The demand to get in has been very buoyant and companies are still contacting us to get in. There has been a real surge this year from companies because there really is no other event that features junior pre-production companies in this way where they can meet with institutional investors. Word has got out that if you’re a junior that wants to build your institutional shareholder base then Beaver Creek is the place to be.”

To cope with the demand, Levental’s team has substantially increased the capacity for all important one-on-one meetings, the main point of the event by redesigning the event floor plan to create more meeting areas and accommodate juniors that come just for the one-on-one meetings.

The Denver Gold Forum (DGF) is also set for a record-breaking year.

Wood said the forum, in its 28^th year, was expected to attract around 1150 people, with 340 buy-side delegates registered.

“We have 109 companies participating in the primary DGF event, up from 103 last year and 66 in the XPL Dev event, up from 53 last year,” he said.

“We have seen some large projects recapitalise and resurface, whilst M&A activity within the last year has resulted in some spin-offs that want to join the program.”

Wood, who speaks with dozens of miners and money managers in the run-up to the DGF, said he felt a level of bullishness in the sector that he hadn’t seen in quite a while.

“The miners are confident that they have got their costs under control and can grow profits again so they are changing to a more risk-taking mindset from the factory mentality of controlling costs,” he said.

“We also see some entrepreneurs that sold their companies during the boom come back with new projects, so on the junior side there are some very interesting new companies with some very strong names in their management and directors.”

Keynotes

This year’s keynote at the PMS is Donald Coxe, chairman of Coxe Advisors who has four decades of institutional investment experience and publishes his views and recommendations on global capital markets to institutional clients through The Coxe Strategy Journal.

The DGF has Marcelo Kim, a partner at Paulson & Co who oversees global natural resource investments, speaking about gold: myths, dreams and reality, whilst Charlie Morris, head of multi asset at Newscape Capital, will speak on tactical gold allocation within a multi-asset portfolio.

“Gold has a close relationship with the bond market, not just in the US, but around the world,” Morris said.

“When conditions are most attractive, it makes sense to hold a larger position in gold. And knowing when to stay away, can make a real different to your returns. I will outline my process for allocating to gold, and touch on gold’s relationship with the miners.”

 

MNN editor Kristie Batten will be reporting from the PMS and DGF later this month.