12 Mar 2020 | By Ned Naylor-Leyland

More than a miner oversight

As equity markets around the world feel the pinch, the oil price tumbles and developed world government bond yields touch record lows, if only there was an area of equity markets doing materially better now than it was a few weeks or months ago…

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Hang on – there is.

There has been a perfect storm for a number of non-US gold and silver miners in the past week or so. Since early December, the share prices of global gold and silver miners, as measured by the ASX All Ordinaries Gold Index, have risen just over 10%; however, the Mexican peso and Australian dollar gold price have risen around 19% and 23%, respectively.

And with the oil price weakness thrown into the mix – oil is one of the largest input costs in the mining industry – a unique opportunity has opened up. These changing circumstances are yet to be reflected in the share prices of Mexico- and Australia-based gold and silver miners; indeed, such companies have been hit by the broader indiscriminate market weakness. This discrepancy can only last for so long. Favourable currency moves and lower energy costs should result in higher profit margins and share price strength.

It is worth highlighting that while the current environment – low oil prices, weakened Mexican peso and Australian dollar – is good for some miners, that is not to say the same miners aren’t able to flourish in an environment of stronger currencies and a stronger oil price; if the gold price is strong enough, the broader backdrop is largely irrelevant.

In every crisis, there is an opportunity; with the double-whammy of falling costs and rising gold and silver prices, now is the time to take advantage.

Source: Bloomberg as at 09/03/20, rebased to 100.

Next article:
Silver’s shining playbook

09 Apr 2020 | By Ned Naylor-Leyland

We are living through very strange times but it’s worth remembering that the Merian Gold & Silver Fund was established for periods such as now.

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