Resurgence in the price of gold amid geopolitical tensions between North Korea and Japan has drawn investors back to gold mining shares.
The precious metal has increased by nearly 10% in value since 7 July to $1,317 per ounce. Over that same period the best performing gold miner on the UK stock market has risen by 100% in value, being Bezant Resources (BZT:AIM).
Gold miners often outperform a rising gold price for numerous reasons. For example, a higher gold price can equate to larger profit margins and potentially enable the company to pay down any debt at a faster rate.
Exploration companies can benefit from a higher gold price as it can mean the difference between having a marginal project which wouldn’t make much money at lower prices, compared with one that could now make some profit if the mine was in production.
Furthermore, a higher gold price could make investors more willing to give the company money through an equity raise to support its future plans.
WHICH STOCKS HAVE DONE WELL?
Bezant has a gold-platinum mine in Colombia which started production in mid-August this year. The second best performing gold-related miner on the UK stock market since the start of the latest gold rally is Vast Resources (VAST:AIM) whose shares are up 33% in value. It has a producing gold mine in Zimbabwe as well as polymetallic mining interests in Romania.
Among the large caps, Randgold Resources (RRS) is the top performer with a 17% share price gain since the gold rally began in July. Fresnillo (FRES) is up 12% and Polymetal (POLY) is trading 8% higher.
Stockbroker Panmure Gordon says the longer gold remains around the $1,300 per ounce level, the higher the likelihood that Polymetal pays another special dividend to its shareholders.
HIGHER GOLD PRICE DOES NOT GUARANTEE SHARE PRICE SUCCESS
Not all gold miners have been lifted by the recent commodity price rally. We calculate that 18 UK-quoted mining with gold-related projects have seen their share price fall over the eight week period.
Some miners have been depressed by external factors such as tougher mining rules in Tanzania making life harder for Acacia Mining (ACA), down 27% over the period; and Shanta Gold (SHG:AIM), down 25%.
Other stocks have been hit by the usual financial pressures that weigh on junior exploration firms. For example, Ortac Resources (OTC:AIM) is down 32% since 7 July as investors speculate it is running out of money (again).
