Gold News

"Boring" Gold Price Better for 2014 Miners

Simple tips for would-be gold mining investors as price becomes "boring"...
COSMOS CHIU, executive director of precious metals equity research at CIBC World Markets, doesn't just stick to mining companies in North America.
Consistently ranked in the top 10 in the Brendon Wood International survey for the Precious Metals: Small/Mid Cap sector, Chiu was ranked fifth overall best stock picker by Starmine in 2010. And since joining CIBC in 2006, he now spends much of his time in Africa, where one-third of newly mined gold comes from, as Chiu explains in this interview with The Gold Report...
The Gold Report: Cosmos, with US economic data putting pressure on gold and silver prices, Moody's is forecasting an average of $1100 per ounce) for gold in 2014 with almost identical all-in gold production costs. Bank of America Merrill Lynch is forecasting an average of $1150 per ounce. What's your view?
Cosmos Chiu: The US economic data is nothing new. Last year certainly wasn't the best for gold. However, the bad news has already been priced in. We've seen some pretty robust US data come out first thing in 2014 and gold prices have held up at the $1200 per ounce level.
CIBC has an average gold price for 2014 of $1350 per ounce, which is predicated on robust Asian demand for physical gold. An all-in gold production cost of $1100 per ounce is pretty realistic from our perspective.
We have wide-ranging coverage at CIBC from gold mining companies to royalty companies. Yes, there will be some companies in trouble. Investors have to be pretty picky about where they invest. They need to focus on the companies that have strong balance sheets and the flexibility to cut costs and focus on the cash cost.
TGR: Most people would say that $1350 per ounce is quite bullish.
Cosmos Chiu: It's not conservative. Is it overly bullish? I think it's doable.
TGR: We will soon see Q4/13 earnings reports from gold producers. Will those reports show investors that gold producers can still perform with gold hovering around $1225 per ounce?
Cosmos Chiu: We've seen glimpses of what Q4/13 could look like through production reports. It's becoming a market where there are good producers and there are bad producers. The difference is especially visible right now. For the better producers, some will continue to see cash costs come down. We saw that in Q3 versus Q2. I would expect that to happen again. The better producers will continue to make money even at today's gold price.
TGR: What are some surprises that companies could provide this year?
Cosmos Chiu: Q4/13 is going to be a lot cleaner than what we saw earlier this year with the write-downs. It might even be a little bit boring which, to be honest, is a good thing. Companies will be able to prove that they can make money. It won't be one of those noisy, messy quarters that we saw earlier last year.
TGR: Your coverage spans Canada and Mexico, Turkey, Greece, China and South America. This is a still a risk-adverse market where most precious metals analysts are sticking to safe mining jurisdictions like Canada, the US and Mexico.
About 30% of your coverage, however, includes names that primarily or exclusively operate in Africa. Why do you lean heavily on equities with key assets in Africa?
Cosmos Chiu: I try to give broad coverage to the different areas in the world where gold is produced. Looking at the world, about one-quarter to one-third of the gold production is coming from Africa. A lot of Africa's production is coming from South Africa. I try to pick out the better or more prospective parts for future growth. Mainly, that's coming from West Africa.
TGR: If you could, please leave our readers with an investable theme or two to chew on.
Cosmos Chiu: Focus on the companies that have a stronger balance sheet, stable operations and growth potential.
TGR: Thanks, Cosmos.

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