I didn’t get much support for my editor’s letter in the magazine this week: Olympic delusions (subscribers can find out why here). But this column on gold shares appears to have gone down rather better. One of our favourite fund managers – Sebastian Lyon at Troy – has been in touch to tell me that he also thinks gold mining shares are about to see better times.
He notes that they are mostly cheap and has topped up holdings in Newcrest and Newmont. The former has had a nasty year thanks to production problems – its production forecasts have been cut twice already this year – but Troy suspects they are now through the worst.
A note also arrived from Angelos Damaskos of the Junior Gold Fund yesterday. He expects the gold price to “resume its uptrend” (as do we – not least because of China’s passion for it) and reckons that when it does the “rerating of gold mining equities should be quick and substantial”.
As ever, the companies that will benefit the most are those with “solid balance sheets, growing production-manageable cost bases and development potential” are the ones that are likely to be the best. However Damaskos also expects “acquisition activity to intensify as medium sized, cash-rich companies take advantage of market anomalies and snap up distressed situations”.
Given that two of the holdings in the Junior Gold Fund have recently had all-share offers made for them (Integra and Avion Gold), this doesn’t seem an unreasonable expectation. After all, this M&A activity, if nothing else, tells us that, at these levels, the larger players in the market see value in the smaller, and Mike Feehan, a regional manager at Barrick Gold is quoted as saying that “there’s more M&A opportunities today than there were a year ago, and as a company we’re looking at those assets on a daily basis”.