Presentation given at the Shaw & Partners Gold Conference, Perth, October 2024
Gold prices have reached record highs, surpassing US$2,500, with predictions of further increases toward US$3,000. This growth is influenced by gold’s role as a safe haven asset, store of value, currency, and commodity. Unlike other mineral commodities, where investors rely on mining companies for market exposure, gold allows direct investment through ETFs, funds, certificates, royalties, and streaming companies. This has diminished the role of gold miners and explorers as access points to gold investment.
Despite rising gold prices, miners and explorers have struggled to attract investors due to poor capital, cost, and risk management, as well as declining exploration success. To stand out, gold miners and explorers must offer additional value beyond gold’s performance. Miners can focus on providing leveraged returns on the gold price through business growth (via mergers and acquisitions or organic expansion), widening profit margins, and increasing production scale. This growth must surpass the benefits of investing in gold-price tracking assets.
Gold explorers contribute to portfolios by offering high-risk, high-reward potential through discoveries, which are relatively uncorrelated with broader financial and commodity markets. Their “idiosyncratic exploration risk” adds unique diversification, though this diversification is typically a small part of an overall portfolio. Explorers must deliver exceptional returns during counter-cyclical market phases to remain attractive.