Eighty-eight percent of gold mining executives questioned for PwC’s annual gold mining survey believe we will see a rise on the price of gold in 2013, with no executive anticipating a decline in gold prices. Indeed,executives of some of the largest gold companies expect to see the price of gold climb beyond $2,000/oz.
An analysis of the 46 largest TSX-listed gold mining companies show that more than 20% of these companies have cash reserves greater than $500 million, according to the report.
John Gravelle, PwC mining leader for Canada and the Americas, said, “Gold miners are adamant about proving to the market that they’re once again a good investment-not just for the interim-but for the long term.”
“Receiving investors’ approval will involve establishing cost effective management strategies, increasing dividend payments and responsibly investing in production growth—all on the back of a strong gold price,” he advised.
“There’s been a shift in focus with gold executives concentrating on the bottom line-specifically focusing on the rate of return per ounce produced,” Gravelle observed.
The PwC survey asked how gold miners used this cash this year and how they will use their cash in 2013.
One hundred percent of the senior gold companies surveyed said they used cash to pay dividends this year and will use cash to continue to pay dividends in 2013. Of those, 80% said they plan to increase the proportion of profits paid as a dividend.
Only 20% of junior and mid-tier gold mining companies surveyed used cash to pay dividends this year while 28% plan to offer their shareholders a dividend in 2013. Of those planning to offer a dividend, half plan to increase the amount of profits paid as a dividend.
Of the senior miners surveyed, 20% spent money on acquisition-related activity this year and only 20% again plan to spend money on acquisition-related activity next year. Among the juniors/mid-tiers, 14% spent money on acquisitions related activity in 2012. However, 33% of juniors/mid-tiers plan to spend money on acquisition-related activity in 2013.
“With only 20% of senior gold miners looking to increase capital investment, it is no surprise that of the 80% of senior gold miners looking for additional financing in 2013, most of them noted they will turn to equity markets for funding,” PwC determined.
Juniors and mid tier gold companies, however, will engage in more aggressive growth plans that will require significant financing for said projects to see the light of day,” said PwC. “As a result, only 28% of junior and mid-tier gold miners stated they will not pursue additional sources of funding in 2013.”
Of those looking for funding, 61% will be looking for debt funding of their projects, 36% will use equity financing, and 11% hope to secure off-take agreement or streaming deals, according to the survey. ‘The companies who responded aren’t considering buying other companies to acquire cash, nor are they interested in selling off a piece of their project via royalties,” said PwC.
The survey found that 39% of mining companies expect their cash cost to be moderately higher in the next 12 months, while 33% anticipate cash costs will be lower. Key drivers for that change will be wage inflation, input/commodity prices, production costs, and sequencing of mining activities impacting mining grades.
Of those companies surveyed, 74% of those responding expected to increase their reserves this year through organic brownfield exploration, while 57% anticipated adding to reserves through acquisitions.
The most active gold company buyers in 2012 were in Canada with 243 transactions worth a combined total of $4.8 billion, followed by Australia at 97 deals at $1.7 billion, and China at 28 deals at $2.35 billion.
“China is keen on gold for two main reasons,” said PwC. “The life of mine for China’s gold mines is low. To ensure they have secure access to gold in the future China is looking at promising gold acquisitions abroad.”
PwC also suggested the Chinese Central Bank is expected to support state-owned entities acquiring additional gold assets both in China and abroad.
The top gold deal of 2012 was Eldorado’s $2.35 billion acquisition of European Goldfields.
SILVER COMPANIES SURVEY
Of the senior global silver companies surveyed by PwC, 75% of the respondents say they believe the price of silver will increase in 2013 or remain about the same.
One hundred percent of the silver miners plan on using their cash for project development next year while 87.5% also intend to use cash on exploration spending. However, only 25% of silver companies intend to use cash for share repurchase or acquisitions. Only 12.5% of those surveyed intend to pay dividends next year.
When asked how silver miners’ cash costs will change during the next 12 months, 57% said costs will go moderately higher, while 29% expect cost to be significantly higher.
PwC found that Canada was the most active silver buyer this year, completing 27 deals valued at US$2.25 billion. Coincidentally, 20 of the most active silver targets are also in Canada.
To read the PwC 2013 Global Gold Price Report, go to www.pwc.com/ca/goldsurvey