In a presentation by Crescat Capital's Geologic and Technical Director, Dr. Quinton Hennigh, he summarized the past five decades' history of the gold sector and opined that it is "on the cusp of an age of discovery."
"I think we're in a resounding bull, if you will," he said.
Hennigh began his gold space review with the metal's performance during the 1970s, when South Africa dominated gold production, and a gold mining industry in the rest of the world was small. During that decade, the gold price slowly climbed, in a stairstep pattern, from about $48 an ounce ($48/oz) to $800/oz. In the latter part of the 1970s, gold soared, and capital amply flowed into the space.
"This investment came when generalists said, 'That's it, we've got to find something else to invest in. This gold looks really good right now,'" Hennigh noted.
This led to an "age of discovery," according to Hennigh, of numerous
major gold deposits around the world, between 1980 and 1997.
They were Hemlo in Canada, deposits in Nevada's Carlin Trend by Newmont Corp. (NEM:NYSE) then Barrick Gold Corp. (ABX:TSX; GOLD:NYSE), Skeena Resources Ltd.'s (SKE:TSX.V) Eskay Creek, Newmont's Yanacocha, and many others.
A lot of today's gold mining majors got their start during this period, including Polyus Gold (PLZL:LSE; OPYGY:OTCPK), Kinross Gold Corp. (K:TSX; KGC:NYSE), AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) and Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE).
Then the trend reversed in around 1996-1997. The gold price fell to roughly $250/oz, the softening caused in part, Hennigh opined, by hedging of the gold discoveries and a gold oversupply.
A bleak period followed, through 2001, during which the majors had to cut costs. They ceased exploration, leaving it to the juniors, and only mined high-grade ore.
Starting in about 2005-2006, the majors went on a buying spree. Kicked off by Goldcorp, they scooped up multiple gold projects and companies.
The gold price went up, yet the majors still held off on exploring. When it became economic enough to restart mining, they did so aggressively, going after the leftover low-grade ore.
Newmont, for instance, started producing more than 7,000,000 ounces in 2004, Hennigh said.
Despite roughly a billion dollars a month going into this space for a while, the majors made terrible deals, money was squandered and capital was spent on metallurgically weak projects.
"I call this the age of nondiscovery," Hennigh added. "It was not a good time. It was a very unproductive time. We basically squandered our opportunity."
Following a "soft patch" between 2001 and 2011, the gold price again took off, peaking in September 2011 at just above $1,800/oz, and a lot of money subsequently flowed into the gold space.
Hennigh said we're in one of those times where it looks like gold is dead, right before abundant investment in the space and an upcycle.
The gold price now is around $1,760/oz, having fallen from its recent high of $1,900/oz. On an encouraging note, a number of mining teams are currently working vigorously on deals, such that Hennigh expects many transactions to happen in the next six to 12 months.
"That period of age of discovery is just out beyond this. There are good things to come," Hennigh said.
"The opportunities that I can see out there, including a lot of the stories I've talked about routinely on this show, are going to be the next, we'll call it, age of discoveries that will crystallize new gold mining companies," he concluded.
Streetwise Reports Disclosures:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) Dr. Quinton Hennigh is Crescat Capital’s Geologic and Technical Director. You should assume that as of the publication date, Dr. Quinton Hennigh has a position in the securities discussed and therefore stands to realize significant gains in the event the price of security moves.
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