Gold SWOT: Gold Futures Put In Their Fourth Weekly Gain Last Week

Strengths

• The best performing precious metal for last week was platinum, up 4.90%, but lacked headline news around the price movement. Gold futures put in their fourth weekly gain, although without the lower payrolls number reported last Friday, it was heading for a loss. Interest rates fell on the news with a pause more likely for the next Federal Reserve meeting. The Bank of Thailand views gold as a relative haven in an era of high inflation and growing geopolitical risks, according to a central bank official, as the Southeast Asian nation seeks to safeguard its $210 billion of foreign reserves from market turbulence. The Thai central bank has increased its gold holdings over the past three years as it diversified its investments, Deputy Governor Alisara Mahasandana said in an interview.

• Marathon Gold announced that the Berry deposit has been released from the provincial Environmental Assessment (EA) process. This allows the project to proceed to provincial permitting while review at the federal level remains ongoing. On the latter, the company has received confirmation from the Impact Assessment Agency of Canada (IAAC) that the Berry expansion does not constitute a new project federally, so should not require a new impact assessment.
• Fortuna Silver reported that the Mexican Federal Administrative Court has ruled in its favor by re-instating the 12-year EIA for the San Jose Mine, following legal proceedings initiated by SEMARNAT in January 2023. The Court decision is subject to appeal by SEMARNAT, and if appealed, Fortuna noted that the permanent injunction already in place will remain in effect. The San Jose mine accounts for 5% of net asset valuation and is expected to contribute 27% of operating cash flow in 2023.

Weaknesses

• The worst performing precious metal for last week was palladium, down 0.19%. SSR Mining dropped as much as 14%, the most intraday since June 2022, after the precious metal miner’s gold production missed estimates and realized silver prices also disappointed. National Bank said the earnings results were “clouded” given foreign exchange and tax changes in Turkey, while cash flows missed.
• For St. Barbara, gold production of 17,000 ounces was 34% below consensus. AISC of A$3951 per ounce were well above consensus A$2652 per ounce. As expected, Atlantic shut during the quarter, with Simberi driving the miss. There were two Simberi plant shutdowns in the first quarter and lower gold recovery from a high Sulphur to gold ore feed. SBM expects these issues to improve over fiscal year 2024.
• Buenaventura earnings per share (EPS) was $0.06 versus consensus of $0.19. The lower EPS was due to lower sales and higher costs. The company pre-released its production and sales results earlier this month. Costs of sales and AISC from direct operations of $1,501/GEO and $2,166/GEO were 17% higher and 23% higher than consensus of $1,281/GEO and $1,768/GEO, respectively.

Opportunities

• Tietto Minerals Ltd. surged as much as 37%, the most since March 2020, after the Sydney-listed gold producer received a conditional, non-binding indicative proposal from a unit of Zhaojin Mining Industry Co. that values the firm at about A$654 million ($415 million).
• While solar panel use has expanded dramatically, solar cell manufacturers have cut by 50% the amount of silver required for a panel over the last six years. That trend looks to be coming to a stop with the next generation of solar panels requiring 50% to up to 175% more silver to boost the efficiency of the panels to collect energy. The Silver Institute reports that the photo voltaic industry consumed over 10% of global silver supply in 2022. Additional silver demand, when supply can’t be just turned on, would have a meaningful impact on prices.
• Reporting gold purchases for the third quarter, the World Gold Council notes that "Net central bank buying of 337 tons was the third strongest quarter in our data series, although failed to match the exceptional 459 tons from Q3’22. Yet, demand from central banks year-to-date is 14% ahead of the same period last year at a record 800 tons.” However, total investor purchases remained below their previous high, so they have been enough to support gold, but insufficient to drive prices higher.

Threats

• West African Resource says that following consultation with the country’s gold mining industry, Burkina Faso’s government has increased royalty rates for gold producers. The new royalty rates take effect in November and are expected to increase the company’s 2023 AISC by approximately $6 to $8 per ounce at current gold prices.
• For Endeavor Mining, Burkina Faso has revised its royalty rates (effective November 2023) which now incorporate a sliding scale royalty that increases to a maximum 7% at gold price $2,000 per ounce. This is in comparison to the previous maximum royalty rate of 5%.
• According to RBC, for Franco Nevada and its Panama difficulties the group notes: 1) the stock down another 10% from here to $110 per share level would likely price out Cobre Panama completely, assuming a flat gold price, 2) Franco’s dividend is not affected on its model if Cobre gets fully shut, as only 20% of the company’s free cash flow is allocated to the dividend and the company has $1.3 billion in net cash, and 3) without Cobre, Franco’s outlook is less competitive versus peers Royal Gold and Wheaton Precious Metals.

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