Gold set to pass $2 000 in 2020?

As gold’s fortunes continue to rise, investors are searching for the gold stock best positioned to capitalise on the metals’ sustained increase in value. Mining companies with optimum production costs and a strong, well-managed mine portfolio are an especially desirable stock. PAN African Resources’ Chief Executive Officer Cobus Loots discusses…

Gold had a good 2019. After a slow start, a price surge from early August saw the yellow metal hit $1 553 on 4 September, its highest in six years. Then on 7 January this year, it breached $1 570, before almost hitting $1 590 by the end of the month. Analysts are optimistic that this upswing will be sustained. The result is that gold as an investment is now, once again, returning to the spotlight.

As a safe haven investment, events including the U.S. general election, continued U.S./China trade negotiations, Brexit, and retracted global economic growth forecasts, are all likely to impact the performance of gold this year, which has already jumped almost 3.5% since the start of the new year.

And while reaching the landmark $2 000/oz figure is being punted as a very real possibility for 2020, longer-term forecasts include predictions of between $3 000 and $5 000 as achievable within the next five to seven years.

This is all welcome news for miners invested in South Africa’s gold industry, which, even after a century of progressively intensive mining, continues to be one of the world’s top ten gold producers, with some of its largest contained gold reserves.

Such promising financial predictions are not a complete surprise to everyone, as the commodity has enjoyed a general upward trajectory in its fortunes since the start of 2016. For several years now, gold has outperformed a number of traditionally more attractive investments, such as those on the S&P 500 index. Its increase in value over the last 20 years is over 400%.

Public investment exposure to gold stocks, however, is still expected to remain modest until it nears the $2 000 mark, analysts suggest. Investing before it hits that mark will pay greater dividends in the future.

Best investment options for gold in 2020

The attractiveness of mid-tier miners, in particular, as well as larger juniors has surged, as these companies are well positioned for strong production growth. While major miners struggle with declining production and in finding enough new gold to offset depletion, mid-tiers with strong assets are increasing gold output and seen as the sweet spot for stock-price appreciation potential.

The commissioning of Pan African Resources’ Evander Mines’ 8 Shaft pillar extraction project is among the latest new gold mining projects in South Africa to begin production, with first gold produced in August 2019.

This project will contribute 20 000 to 30 000 oz per annum for three years to Pan African Resources’ mid-tier mining portfolio, with a recovered grade of 8.6 g/t produced at a cost of below $1 000/oz.

It joins an attractive portfolio that also includes the high grade Barberton Mines, with a capacity of 100 000 oz/annum; the Evander Mine complex; and two tailings retreatment plants (Barberton and Elikhulu) producing up to 100 000 oz/annum. We remain on track to produce at least 185 000 oz of gold for the full financial year ending 30 June 2020.

Investing wisely this year:

With widespread optimism towards gold performance in the current cycle, investors should be considering miners offering both proven capabilities in mitigating risk and expanding production, with mid-tiers with low-cost and diversified assets the logical sweet spot.

2020 is shaping up to be an important year for gold.

Cobus Loots
Chief Executive Officer
PAN African Resources