With gold prices rebounding from previous market slumps, now may be the perfect time for investors to look into the gold space, as the yellow metal is showing no sign of retreating.
In particular, market participants may want to turn their attention to investing in Australia, as it is currently the second largest gold producing country in the world and its western region is an increasingly sought out jurisdiction.
Read on for a breakdown of the Australian gold market, as well as the largest gold producers that currently operate within it.
Gold producers in Australia: The region
As previously mentioned, Australia is currently the second largest gold producing country across the globe.
Gold production in the country reached a high of 310 metric tons (MT) in 2018, up from 300 MT the previous year. This year alone, Australia is expected to produce an estimated 10.7 million ounces, which is the equivalent of about US$19.2 billion.
“There’s three countries that combine the rule of law with significant gold production: Canada, USA and Australia. Outside of these three, there’s not much gold, or there’s not much protection for individual investors and companies,” Kevin McElligott, managing director of Australia at Franco-Nevada (TSX:FNV,NYSE:FNV), told the Investing News Network (INN) via email.
“Australia is very similar to Canada in many obvious ways. Large country, small population, western liberal democracy, high standard of living, high international trade, etc.,” he added.
“The difference for Australia is that gold is 12 percent of exports, versus 2 percent for Canada. So the gold producers are more important to the Australian economy to maintain that high standard of living. There’s higher political and social support for gold mining here.”
Recent exploration activity in the Pilbara region of Western Australia has renewed interest and helped increase the country’s consistent gold output. While the Pilbara region is typically best known as one of the world’s largest producers of iron ore, the region is currently in the midst of increased gold exploration thanks to a major discovery in 2017 by Novo Resources (TSXV:NVO,OTCQX:NSRPF) and Artemis Resources (ASX:ARV,OTCQB:ARTTF).
In fact, gold mining is the fourth largest commodity sector in Western Australia, behind iron ore, crude oil and liquified natural gas, with a value of approximately AU$10 billion.
The Fraser Institute also named Western Australia one of the best mining jurisdictions in the world, coming in second to Nevada. The area has attracted major miners like Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO) and BHP (ASX:BHP,NYSE:BHP,LSE:BLT) to the region. Covering more than half a million square kilometres, Western Australia’s Pilbara is one of the most resource-rich regions in the state.
Western Australia itself represents close to 70 percent of the country’s total gold output and some geologists have compared the geology of the Pilbara Craton with South Africa’s Kaapvaal Craton and Witwatersrand Basin. Witwatersrand is home to the Earth’s largest known gold reserves and is responsible for over 40 percent of worldwide gold production. Both the Pilbara and Witwatersrand are similar in age and composition, sitting on top of the Archean granite-greenstone basement. The Pilbara area hosts numerous small mesothermal gold deposits containing conglomerate gold — mineralization known to hold large, high-grade gold nuggets.
Recently, several gold exploration companies have moved into Pilbara, including De Grey Mining (ASX:DEG,OTC Pink:DGMLF), NxGold (TSXV:NXN), Kairos Minerals (ASX:KAI,OTC Pink:MPJFF), Pacton Gold (TSXV:PAC,OTC Pink:PACXF) and Monterey Minerals (CSE:MREY,FWB:2DK).
Major mining companies like Kirkland Lake Gold (TSX:KL,ASX:KLA) have also invested in the region, committing C$56 million into Novo Resources. Kirkland Chairman Eric Sprott is a well-known resource investor who owns shares in Novo as well as several other companies throughout the Pilbara region.
How to invest in gold in Australia?
There are three main ways to invest in the yellow metal — physical gold, gold ETFs and gold stocks.
Physical gold investors are generally looking for items that are 0.999 fine. Several products fit this description, and one of the most preferred is the gold bullion coin, with varieties such as the South African Krugerrand or the American Gold Eagle.
Another option is gold rounds, which are similar to coins but are not legal tender. Both gold coins and gold rounds come in various sizes, usually ranging from 1/10 ounce to 1 ounce, though other less common sizes are available.
Gold bars are another popular option. They also come in a variety of sizes, and as choices can range from a 1 gram bar to 400 ounce bar, this category of products can accommodate a range of investors.
When the objective is to get the most metal for the least money, it’s generally best to shop for gold rounds and gold bars, which tend to be cheaper than gold coins of the same weight. The premium for gold coins is higher because of the credibility that they receive from being fabricated by government mints and because of the design detail on them.
Another factor that may need to be considered is the amount to be invested. Large investments may be best made in bars since larger sizes are available. Further, it is often easier to manage large products than it is to manage an array of smaller gold items.
However, physical investors need to also give forethought to occasions when they may want to sell their gold. Large products will require liquidating a larger portion of one’s gold portfolio, and such products may be more difficult to sell in some instances. Individuals making ongoing or significant investments may therefore want to consider purchasing gold in various weights.
In terms of Australian physical gold, investors are able to buy and sell as much as they want, as the government does not place a minimum or maximum on the amount of the yellow metal in one’s possession. However, when it comes to selling, many industry experts suggest holding on to the metal for up to 10 years to turn a respectable profit.
Types of Australian physical gold
Australian Kangaroo Gold Bullion Coin: A gold coin from the Perth Mint containing one troy ounce of 99.99 percent pure gold.
Royal Canadian Mint Maple Leaf: Similar to the coin from the Perth Mint, it is one ounce and 99.99 percent pure gold.
American Gold Eagle: A gold bullion coin from the US Mint. One troy ounce of gold at 99.99 percent purity.
Minted Bullion Bars:
Kangaroo Minted Gold Bar: One troy ounce with 99.99 percent. Other minted bars to consider should come from a reputable refinery, such as PAMP or Argor-Heraeus.
Kangaroo Mint 100 grams Minted Gold Bar: Contains 3.215 ounces of gold at 99.99 percent purity. Other refiners, such as PAMP or Argor-Heraeus, also offer a similar product.
The Perth Mint Gold Cast Bar in 1 ounce, 10 ounces or 1 kilogram. Each cast bar contains one troy ounce, 9.99 troy ounces and 32.148 troy ounces respectively.
It is worth noting that cast bars don’t have to come from the Perth Mint. You can purchase these bars from any reputable bullion dealer in Australia.
How to store physical gold
Determining the best storage option involves weighing risks against costs. Paying for secure storage eats into profits from the metal’s gains, so some people choose to store their gold at home or in their office. In theory, that is the riskiest option, as it involves the highest potential for loss due to theft or disaster. But in many instances these risks are not substantial enough to justify the cost of other storage options.
Investors who have significant quantities of gold or whose circumstances involve elevated security risks should consider securing the metal in a depository or safe deposit box. Investors who do so should note that rates vary, so bargain hunting can pay off. Another thing to note is that some banks do not technically permit the storage of bullion, and this is listed in the terms and agreements that customers are required to sign.
Keep in mind that for private investors who reside in Australia, physical gold can’t be insured.
Although exchange-traded funds, or ETFs, have existed since the 1990s, their prevalence in the market became most notable in the early 2000s.
Gold-focused ETFs became popular as a result, and they remain a good option for investors who want exposure to the precious metal without personally trading physical gold, gold futures or gold stocks.
Like all other ETFs, gold ETFs act in the same manner as individual stocks, meaning that investing in a gold ETF is similar to trading a stock on an exchange.
There are two main types of gold ETFs: those that track any price changes that the metal goes through and those that deal with investing in gold companies.
ETFs that follow the price of the yellow metal give investors access to gold by holding either physical gold bullion or gold futures contracts. It is important to keep in mind that investing in these gold ETF platforms does not allow investors to own any physical gold — even a gold ETF that tracks physical gold cannot be redeemed for actual gold.
ETFs that invest in gold companies provide exposure to gold mining, development and exploration stocks, as well as gold streaming stocks.
Benefits of investing in gold ETFs
As mentioned, gold investors have plenty of options for getting exposure to the yellow metal, including investing in gold bullion, gold futures and gold stocks. But gold ETFs are often considered a lower risk investment and have a number of benefits for market participants.
For example, physical gold is known for being a hedge against economic and political uncertainty, and owning shares of a physical gold ETF provides investors with this same security — without the hassle of buying and storing the yellow metal.
Due to the fact that the spot gold price is volatile, investors can take advantage of the price movements, and gold ETFs can suit that purpose. However, it is worth noting that if an ETF shows a markedly different return to the spot price of gold, chances are the fund has exposure to more than gold bullion alone.
Gold ETFs that track gold companies let investors access multiple companies in the space rather than choosing specific stocks. This is an appealing option for those who want exposure to the sector without having to make minute decisions.
Gold ETFs as a whole also offer security in that they are managed by yellow metal experts, so there is a better chance of making a profit than going it alone. Of course, it is important to keep in mind that, despite their less risky nature, gold ETFs are still affected by the rise and fall of gold prices.
Mutual funds are often compared to ETFs, but in the case of gold ETFs, there are some tax advantages that make them more desirable than traditional mutual funds. ETFs typically garner fewer capital gains when compared to mutual funds, because there is no necessity that ETFs sell the underlying securities in order to finance investment inflows and outflows. Due to this factor, those who hold gold ETFs over mutual funds will generally owe less come tax time.
Additionally, due to the fact that mutual funds can only be bought or sold at the close of the trading day, gold ETFs become more beneficial as they can be traded whenever the stock market is open, meaning movement is more free and not tied down by the end of day trades.
Like all publicly listed stocks, gold companies issue shares that are available for investors to trade. When you purchase shares of a gold stock, you are essentially purchasing a stake in the company, making an investment with financial returns or losses from its profits.
There are two main ways that an investor can invest in gold mining stocks. The first way is market participants purchasing through a major mining company. The other way of trading on the stock market is by investing in a gold mining stock through a junior miner (a small cap stock).
Although no gold stock investing is 100 percent foolproof, backing a successful mining company in the precious metals space can alleviate some of the stress of a down stock market when you keep in mind that if a company’s share price goes down, it becomes more affordable to purchase and investors can more than likely anticipate that it will rise again and turn a profit.
While gold stocks are affected by some of the same factors that shape and shift the price of precious metals, they keep some distance from a direct correlation because it is possible for a gold miner and its stocks to be in a sound financial situation even in a down market.
Brock Sailer, a partner at Sprott Global Partners, believes that there is an intriguing case to be made for looking at ASX-listed stocks over those on the TSX.
“(There are) a bunch of (ASX-listed) mining companies doing exactly the same thing as what the Canadians are doing. So you’ve got to be careful when you’re investing in a Canadian stock — are you getting the best value?” he noted to INN.
As his second point, Salier noted that the ASX and even the LSE are home to companies that focus on commodities and geographies that are less common on the TSX and TSXV. For example, he said, London-listed companies tend to be more comfortable with Africa, while companies on the ASX “have taken to (the Tesla (NASDAQ:TSLA) revolution) with more vigor than anyone on the TSX or in London.”
Gold producers in Australia: Top 5 producers
While there are several thriving gold producers within Australia, below we’ve outlined the five ASX-listed gold companies that have seen the biggest gains year-to-date. Data for this article was gathered on TradingView’s stock screener on November 13, 2019, and companies with market caps of over AU$50 million were considered.
1. AngloGold Ashanti’s (ASX:AGG,NYSE:AU,OTC Pink:AULGF)
Current Market Cap: AU$11.65 billion
AngloGold is currently the third largest gold mining company in the world in terms of the amount of the yellow metal it has produced.
The miner currently operates 14 assets within nine countries including long-life, relatively low-cost operating assets with differing ore body types, located in key gold-producing regions around the world. These operating assets were supported by three Greenfields projects in a 10th country and a focused global exploration program.
In addition to Australia, AngloGold’s operations and Greenfields projects can be found in the following regions: Continental Africa, the Americas and South Africa.
At the end of October, the company announced Q3 production and financial results, stating that output during that time was 825,000 ounces at a total cash cost of AU$786 an ounce.
2. Northern Star (ASX:NST,OTC Pink:NESRF)
Current Market Cap: AU$5.76 billion
Since the acquisition of the high-grade, low-cost Western Australia Paulsens mine in 2010, Northern Star has managed to create a portfolio of high-quality, high-margin mining operations.
In the last few years, Northern Star has transformed from a 100,000 ounce of gold per year, single mine producer, to one with three concentrated centres with total annual production in FY2020 projected at 800,000 to 900,000 ounces at AU$1,200 to AU$1,300 per ounce.
Additionally, Northern Star has made impressive strides to significantly extend the mine life and grow the resource base of the entirety of its assets by investing heavily in near-mine and in-mine exploration.
In addition to its Australian operations, late last year, the company acquired the world-class Pogo gold mine in the tier-1 jurisdiction of Alaska, which will see Northern Star expand its footprint into the highly prospective Tintina Mineral Belt.
3. Saracen Minerals (ASX:SAR)
Current Market Cap: AU$2.74 billion
Saracen is currently on a “Flight to 400” — meaning that it that is on the path to reaching its goal of producing 400,000 ounces of gold per year from its two mines near Kalgoorlie.
Recent highlights include strong cash flow from Carosue Dam and Thunderbox, no debt, growing production, growing reserves and outstanding exploration upside.
Most recently, the miner announced that its increased exploration spend in the last few years has delivered global-leading growth, with reserves doubling over the past three years.
The company set a yellow metal output record 3.3 million ounces by June 2019. The company has also noted that last year was particularly successful, with a reserve increase of 800,000 ounces, even despite 330,000 ounces of mining depletion.
4. Regis Resources (ASX:RRL,OTC Pink:RGRNF)
Current Market Cap: AU$2.29 billion
Regis is a fully Australian gold miner with operations at the Duketon gold project in the North Eastern Goldfields of Western Australia and the McPhillamys gold project in the Central Western region of New South Wales.
The company’s Moolart Well gold mine, which it acquired through its 100 percent owned Duketon gold project, has produced over 600,000 ounces of gold at cash costs in the lowest quartile of the Australian gold industry.
During its third quarter of this year, Regis revealed that it produced 87,633 ounce of gold with an unchanged full year guidance of 340,000 to 370,000 ounces at an all-in sustaining cost range of AU$1,125 to AU$1,195 per ounce.
5. OceanaGold (ASX:OGC,TSX:OGC,OTC Pink:OCANF)
Current Market Cap: AU$2.07 billion
Headquartered in Melbourne, Australia, OceanaGold continuously innovates and improves the way it explores, extracts and processes minerals.
At the end of October 2019, the miner announced that it produced 362,450 ounces of gold during the first nine months of the year, as well as 10,187 metric tons of copper.
In the miner’s third quarter alone, it had an output of 107,478 ounces of gold and 2,316 metric tons of copper.
In terms of finances, the company also revealed that it had a year-to-date operating cash flow of AU$157.6 million, including AU$32.4 million from the third quarter.
Additionally, Oceana’s revenue was AU$499.1 million with earnings before interest, depreciation and amortisation of AU$169 million and a net profit of AU$5.8 million.
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Securities Disclosure: I, Nicole Rashotte, currently hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Monterey Minerals is a client of the Investing News Network. This article is not paid-for content.
The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.