Why has the Silver Lake (ASX:SLR) share price leapt 30% in a month?

It’s been a golden month out of Silver Lake’s camp.

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A smiling woman sits in front of her laptop with her baby in her lap looking at her rising ASX shares including Silver Lake Resources

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The share price of gold mining company Silver Lake Resources Limited. (ASX: SLR), inched 0.90% higher on Thursday to finish trading at $1.69.

Silver Lake shares have been on an upward trajectory this past month, posting a return of 30% in that time.

That’s a decent step ahead of the S&P/ASX All Ordinaries Gold Index (XGD) which has posted a return of about 10% in the same time, and even further ahead of the benchmark S&P/ASX 200 Index (ASX: XJO)’s gain of just 0.5%.

Here we dissect what’s been fuelling this price action in the last month.

What’s up with Silver Lake Resources share price lately?

Silver Lake presented its quarterly earnings and activities report on 19 October, for the three months ended September 30 2021.

In its report, the company recognised record quarterly production at its Deflector site of 31,033 ounces and 251 tonnes of copper.

Sales on this production were of 28,074 ounces of gold and 212 tonnes of copper, with an all-in sustaining cost (AISC) of $1,249 per ounce.

In fact, the Group realised its overall gold sales on a price of $2,467/oz and an overall AISC of $1,562/oz.

Another personal record Silver Lake beat last quarter was in its ore reserves of 1.36 million ounces, signifying an 18% year on year increase, or “61% of the net FY21 mine depletion”.

As a result of strengths last quarter, Silver Lake exclaimed it was well-positioned to deliver its FY22 group gold sales guidance of 235,000–255,000 ounces and copper guidance of 600–1,000 tonnes.

It forecasts these results on an estimated AISC of $1,550–$1,650 per ounce.

It also sees a “three year ore reserve backed outlook…outlining sales growth of 255,000–275,000 ounces per year” supported by low costs and high margins at the Deflector site.

Perfect timing

The news of Silver Lake’s production is supported by a recent rally in gold spot and futures pricing.

As we rolled over into this month, the price of gold has popped and has climbed 4% or US$76/t.oz since it took off again from 30 September.

A stronger US dollar, coupled with a pullback in US Treasury yields has gold investors piling into the yellow metal this week, however, the rally is also on a backdrop of inflationary fears across global markets.

Gold has historically been viewed as a reasonable hedge against inflation and an adequate store of value over time.

So during times of market turbulence, investors tend to flock to more “safe-haven” type assets, of which gold is a constituent.

And with the unseen hands of supply and demand at play, pricing can tend to follow suite, increasing as demand for gold assets outmatches supply in the market.

Hence given these macro-economic factors, like inflation and changing bond yields, investors seem to have a love for gold once more, according to Trading Economics.

This appears to have weighed in positively for the Silver Lake Resources share price, as it climbed 26% in corresponding fashion to Gold’s latest upward move.

Silver Lake is an ASX resource share that produces gold, therefore it is considered a price taker of the yellow metal– it must accept the going rates of what’s offered in the market.

It is for this reason that its share price can and does fluctuate alongside volatility in the price of gold, typically following the yellow metal in suite whichever direction it goes.

With the summation of these factors in mind, especially the tight relationship between the price of gold and Silver Lake’s share price, it starts to form a picture as to what’s been driving the gold miner’s gains lately.

Silver Lake share price snapshot

Silver Lake Resources share price has struggled this year to date, having posted a loss of 6% since January 1.

This extends its loss over the last 12 months to around 25%, well behind the broad index’s return in that time.

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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