With so much focus on the prices of iron ore, oil and gas recently, you may have missed the strengthening of Australia's gold miners.
And according to EVOLUTION FPO's (ASX: EVN) executive chairman Jake Klein, big gold miners like Evolution, Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) could be raking in the cash right now.
In a Bloomberg Business talk Mr Klein presented several key drivers creating great conditions for gold producers.
The cycle is turning
According to Mr Klein the gold mining industry is in the "low point in the cycle" and is recovering well. Over the last 18 months gold miners have slashed billions of dollars from balance sheets and cut millions more in costs by slimming down operations.
Now as the price of gold recovers production margins are starting to rocket. Evolution reported record quarterly free cash flow of $26.9 million for the most recent March quarter, and All-In Sustaining Costs (AISC) of $1,024 per ounce, compared to the company's average realised gold price of $1,562.
The iron ore crisis is helping gold
Mr Klein noted that the plummeting prices of iron ore and oil have come to the aid of gold miners. Cost cutting by iron ore miners has increased availability of labour, while lower diesel prices have helped ease the pressure on gold production costs. "The demise of the iron ore price has been very positive to us," Klein told Bloomberg.
Gold price sparkling
Meanwhile, the gold price has been showing signs of stability in US dollar terms, currently hovering around US$1,200. In Aussie dollar terms this is even better, with the AUD down around 13% on 12 months ago.
Gold miners are raking in the cash according to Mr. Klein and "Evolution is making a lot of money at these prices".
Klein's medium-term outlook for gold is relatively flat. He noted that for the gold price to rise gold miners "need interest rates to go up and inflation to come back which is not expected in the short term."
Australian gold miners may be raking in the cash, but they are highly reliant on the price of gold and local exchange rates, which is why it's important to limit your exposure as an investor. However if you have been thinking of buying gold miners, now could be a good time with share prices starting to recover and the cycle edging up.
"It's very good to be an Australian gold producer today" Mr Klein concluded in his interview with Bloomberg.
