The quarter ended 30 September 2020 was a volatile period for ASX gold shares, with the rising gold price being offset by the surging Aussie dollar. This saw many ASX gold shares push higher into record territory, followed by a sharp pullback.
The gold price has taken a breather around the US$1,900 level but the upcoming US election and anticipated US fiscal stimulus package could be the catalyst to push gold higher.
Before we look forward, let's take a look back at how ASX gold shares performed in the latest quarter.
Newcrest Mining Limited (ASX: NCM)
Newcrest could be considered the 'gold' standard amongst ASX gold shares, boasting some of the largest reserves, lowest production costs and a suite of technical capabilities. Its FY20 report revealed a solid performance with the company producing 2.2 million ounces of gold at an all-in sustaining cost (AISC) of US$862 per ounce.
Underlying profit of $750 million was 34% higher than the prior period primarily driven by a higher realised gold price and higher copper production at its flagship Cadia, Lihir and Telfer mines, which account for more than 75% of the group's total gold production. These benefits were partially offset by the lower gold sales driven by lower production and higher operating costs at Cadia and Lihir.
Despite a highly profitable and operationally sound quarter, the Newcrest share price went full circle to hit a record all-time high of $38.00 before a sharp pullback to bring its quarterly returns to around breakeven. This coincided with the Aussie dollar rally, which weakened profitability for the gold miners.
Newcrest appears to be making a significant effort in investing for the future with a free cash flow of negative $621 million, which includes payments for the following:
- $1.3 billion to acquire Red Chris mine and increase exposure to Fruta del Norte mine
- $273 million on major capital projects
- $113 million on exploration.
Overall, Newcrest cements its position as one of the largest and most efficient gold producers in the world. The company has successfully navigated the operational challenges of COVID-19 and looks to have an exciting pipeline of growth projects to maintain its operational performance for the medium to long term
Saracen Mineral Holdings Limited (ASX: SAR) and Northern Star Ltd (ASX: NST)
While it didn't occur in the last quarter, this article wouldn't be complete without mentioning the fact that Saracen and Northern Star announced one of the biggest mergers in the ASX gold space in early October. Post-completion, Saracen shareholders will own 36% of the merged group while Northern Star shareholders will own 64%.
The merger is a logical combination of highly complementary assets given the proximity of each other's mines and joint ventures. In 2019, Saracen and Northern Star became 50/50 joint owners of the KCGM mine in the world-class geological district of Kalgoorlie, WA. The merger will consolidate the ownership of KCGM and respective Kalgoorlie district operations into one company for the first time in its history.
Given the proximity of the group's operations in Kalgoorlie and Yandal, WA, it believes that the merger will unlock between $1.5 billion to $2 billion in synergies from combined strategic, corporate, mining and processing synergies. In the case of KCGM, the mine represents the biggest producing asset for the group with the highest reserves. Consolidating its ownership will streamline its operations, drive efficiency, and accelerate growth options.
The announcement saw the Saracen and Northern Star share prices rocket some 15% in the trading sessions that followed. The transaction is subject to approval by Saracen shareholders and the Supreme Court of WA. However, an indicative completion date has been set for February 2021. While its difficult to gauge where the Saracen and Northern Star share prices will go in the meantime, this is no doubt one of the most exciting mergers to take place for ASX gold shares.
Evolution Mining Ltd (ASX: EVN)
Evolution is in many ways the quiet achiever among the ASX gold shares. It's one of the top 3 largest gold-producing companies in Australia behind Newcrest and Northern Star. It doesn't quite grow as fast as Northern Star or Saracen, but possesses a very low AISC comparable to that of Newcrest.
For the 3 months ended 30 September, Evolution's gold production came in at 170,021 ounces, which was a 22% reduction on the prior quarter. This was made up of:
- Cowal production of 51,774 ounces
- Ernest Henry production of 24,569 ounces
- Red Lake production of 26,638 ounces
- Mungari production of 35,370 ounces
- Mt Rawdon production of 20,024 ounces
- Mt Carlton production of 11,646 ounces.
This production was achieved with an AISC of $1,198 per ounce, up from $1,088 per ounce in the previous quarter.
All operations generated positive net mine cash flow during the quarter, with mine operating cash flow and net mine cash flow of $272.3 million and $183.4 million, respectively. As at 30 September 2020, Evolution had cash in the bank of $369.7 million and bank debt of $550 million.
As shown in the table below, Evolution provided a strong 3-year outlook with increased production and lower AISC. Its growth will be driven by its Cowal and Red lake sites. The Red Lake gold operation in Ontario, Canada, is in its early days with significant mineral resource and potential to optimise into a large, long-life mining operation.
3-year outlook |
FY21 |
FY22 |
FY23 |
Production (oz) |
670,000–730,000 | 700,000–770,000 | 790,000–850,000 |
AISC ($/oz)2 |
1,240–1,300 | 1,220–1,280 | 1,125–1,185 |
Sustaining Capex ($/M) |
112.5–137.5 | 110.0–135.0 | 95.0–120.0 |
Major Capital ($M) |
260.0–290.0 | 250.0–280.0 | 220.0–260.0 |
Discovery ($M) |
75.0–100.0 | 70.0–100.0 | 70.0–100.0 |
Table: author's own, Data source: Evolution Mining 2020 Investor Day Presentation
Foolish takeaway
The gold price is sitting at a cool US$1,900 but fiscal stimulus not just in the US but globally could see the gold price grinding higher. Gold is directly tied to stimulus as the metal is inflation driven. As the government prints more money and devalues currency, the gold price is pushed up.
ASX gold shares have achieved operational excellence in recent years. The shares discussed above all possess different priorities –from focusing on cost efficiencies such as Newcrest and Evolution, or growth and M&A such as Saracen and Northern Star.
In my opinion, gold is at a crossroads and investors should pay close attention to what the sector does next.
