Illustrated gold bars

The current volatile gold environment holds great promise for investors. The growth potential is based on the current geopolitical uncertainty and the inherent safety that gold offers. The question however then becomes not if you should invest in gold, but rather in which company should you invest?

We spoke to industry experts Kevin Bullock, Alan Carter and Danny Callow to gain an insight into what to keep in mind when investing in the current gold environment.

Meet the experts

Kevin Bullock is the President and CEO of Anaconda Mining and started his mining career as an underground miner from where he worked his way up to getting a degree and then working in operations. He has been a gold industry CEO for the last 25 years for various companies. Anaconda Mining is currently advancing its Goldboro Gold Project as well as advancing the exploration programs at its Tilt Cove and Point Rousse gold projects located in Newfoundland and Nova Scotia.

Alan Carter is the President and CEO of Cabral Gold. Cabral Gold is a TSX-V and OTC-listed gold exploration company, focused on the advancement of its flagship Cuiú Cuiú gold project in Brazil. The company has reported 5 discoveries in the last 18 months and plans on releasing more in the future.

Danny Callow is the President and CEO of African Gold Group, a TSX-V listed gold exploration and development company focused on its Kobada Gold Project in Mali. The company has spent the last 2 years developing the project to a definitive feasibility study (DFS) stage and plans to produce 100,000 ounces of gold per annum.

Will Gold finally reach USD$3,000 per ounce?

The price of gold has historically acted as a hedge against inflation and has served the role of a safety net for investors. Kevin Bullock believes that gold in its most basic form is a currency. Gold offers a safe haven for investors, especially in times of such uncertainty.

The current investors' community of gold however is small. Should any investor in the community take advantage in securing their wealth with physical gold the price will react accordingly.

It will not be surprising for Bullock if the price of gold exceeds USD$3,000 an ounce, but he cannot foresee the price remaining above that. The price of gold will rather follow its historical linear increase as inflation increases.

Alan Carter also believes that the price of gold may reach USD$3,000 by the end of the year and if not, it will keep rising in the medium term. Carter explains that the war in Ukraine is not an isolated geopolitical crisis and that it will affect the global consumer in almost every aspect of their everyday life. The reason for the impact on the global consumer is due to Russia and Ukraine being producers of various everyday products. The price of everything will increase.

Danny Callow agrees with Bullock and Carter, stating that the price of gold will increase. Callow said that before the Russian invasion of Ukraine, there was talk of double-digit inflation, and with the sanctions either currently imposed or planned against Russia, the price of oil will have a knock-on effect on every operation and industry in the world.

The experts agree that with the current volatile gold environment and investors searching for safer and secure investment avenues, it is a good time to invest in gold.

The question then becomes, which company to invest in?

A repeat of 2020 momentum?

The gold industry saw large amounts of investment in 2020, with various companies and operations that did not have strong fundamentals being financed.

It is important to focus on the fundamentals of a company and its projects/assets and not get swept up in an investors frenzy as so often happens with bullish industries.

Bullock believes that the fundamentals of a company indicate if it will be successful with Carter believing management is another key factor. Callow further believes that both management and fundamentals are important and adds that the dependability of the company’s project/asset, as well as its operational lifetime, is another important factor.

Company fundamentals

The experts agree that before you invest in a company, you must ask yourself the following questions:

Regarding a company’s management:

  • Are management invested in the company?
  • Are they big shareholders?
  • What is the amount they have invested?
  • What kind of salaries do they receive?
  • What other shareholders are invested in the company?

Regarding the management track record:

  • Have they done this before as a management team?
  • Do they know how to get a deal done?
  • Have they made money for their shareholders in the past?

Regarding the company’s assets:

  • What are the technical aspects of the company?
  • Are its resources defendable?
  • How close is the project to production?
  • What is the project's growth potential, can it double? Triple?
  • Which jurisdiction is the project/asset located in?

By asking the above, an investor will be able to circumvent the risk of being swept away in an investment frenzy and focus on key success indicators.

Who will benefit from the gold price?

A higher gold price, according to Carter, will result in companies being able to raise a higher share price, which will result in less dilution per share. Junior mining companies will be looking to capitalise on the current environment and raise funds whilst the gold price increases.

The attractive fundraising environment however does bring with it the risk of taking on too much debt financing. Bullock warns that investors must be wary of the company's equity vs debt ratio, with Callow adding that the source of debt is also very important. A 60/40 or 70/30 debt-equity split is still acceptable as long as the debt is from a large banking institution and the company has large growth potential.

The experts agree that the most important factor to take into account for any project is at what stage it is when taking on debt. An operation that is through its feasibility stage and is either progressing to – or is in its construction phase and takes on debt is at an acceptable stage to do so, but an operation still in its infancy looking to take on debt is a risky investment.

Investing in the current gold environment and picking winners boils down to the following.

  1. Do not get swept up in the investment frenzy
  2. Take the company management into account
  3. Focus on the project fundamentals
  4. Be cautious for “Icarus-ion” projects, those flying too close to the sun with not enough wings to back it up.
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