Gold to Keep Its Shine Despite Fumble

Mon, 10/22/2018 - 14:14

After moving in a narrow range between US$1,354.95/oz and 1,307.75/oz in 1Q, the yellow metal launched a downward trend, hitting an 8-month nadir on August 17 at US$1,178.40/oz. By the middle of September, gold had settled into a tight band between that low and US1,201.90/oz. The World Gold Council in its midyear outlook for 2018 cited the strengthening of the US dollar as trade wars spurred flows into the greenback and weak demand as concerns for the metal. Demand of 973.5 tons in Q1 was the lowest since 2008, it said. US President Donald Trump’s nationalistic policies since entering the Oval Office have been among the movers of the dollar, and as a result, gold. Yet, many insiders remain optimistic.
“US President Donald Trump could probably drive the price of gold pretty easily in the case of a major international crisis, and there is a modest to good chance of that. Also, Republicans in the US are showing no inclination to curb spending, so I expect the price of gold either to remain stable or go high, but it is very unlikely it will go down,” says David Jones, Director of Minaurum Gold.
In 2017, gold represented 32 percent of the country’s mining production value. Its closest contender was copper with 22.3 percent. The yellow metal also 44 percent of regional exploration spending.
Globally, M&As related to gold mines decreased in 2017 by 34 percent to a value of US$7.3 billion. Among the biggest gold deals in Mexico was Goldcorp’s sale of Los Filos in January 2017 to Leagold for US$438 million. Others included Agnico Eagle’s US$80 million acquisition of Santa Gertrudis from GoGold in November and Argonaut Gold’s purchase of the Cerro del Gallo project in Guanajuato, once part of Primero Mining’s portfolio.
RB Abogados assisted with the Argonaut-Primero deal, as well as First Majestic Silver’s acquisition of Primero’s flagship San Dimas property. The law firm’s Founding Partner, Enrique Rodriguez del Bosque, sees appetite returning to new acquisitions after three years of cost-cutting measures. “Thanks to the current financial climate and the rise in prices, M&A deals in the industry are starting to pick up again,” he says. “Companies are looking to expand their portfolios and merge with other players to keep shareholders happy.”
Three operators produced 42 percent of the gold in Mexico in 2017: Fresnillo, Goldcorp and Agnico Eagle. The state of Sonora was the main gold producer with 33 percent. Production increases were registered in Alamos’ Mulatos mine, First Majestic Silver’s Santa Elena Project, Alio Gold’s San Francisco, Agnico Eagle’s La India, and the La Herradura and Noche Buena projects, both owned by Fresnillo.
Peñasquito was the biggest national producer, although its output dropped compared to 2016 to 476,000 ounces. La Herradura was the second-biggest producer with 473,600 ounces and Torex’s El Limón-Guajes mine in Guerrero produced 240,900 ounces to take third place, despite a blockade that began at the end of the year.
The biggest challenge for the industry, according to Ian Telfer, Chairman of the Board at GoldCorp, is finding more gold. “This is a global issue as production at major gold-mining companies is either flat or declining,” he says. “The price of gold will have to go a lot higher to catalyze the next big round of gold discoveries.”
For 2018, higher production is expected due to significant advances in Fresnillo’s portfolio. One of the most eagerly-anticipated projects is MAG Silver JV Juanicipio in Zacatecas, which is expected to produce 30,000oz/y of gold. The prolific project is scheduled for 1H20 with a total investment of US$305 million. After a challenging 1H18 marked by a blockade at neighboring El Limón-Guajes, the Media Luna owned by Torex Gold is scheduled to begin its feasibility study for 1H19, with a possible start-up in 2022; it will produce 170,000oz/y of gold and has a price tag of US$482 million.
Likewise, other projects continue with advanced exploration works, including McEwen’s El Gallo II in Sinaloa Chesapeake’s Metates project in Durango, First Majestic’s Plomosas in Sinaloa and Corex Gold’s Sonora Santana project. In Durango, Telson Resources received the construction permit at the end of 2017 and started commercial pre-production in May, a project that is estimated to reap 16,000oz/y of gold.