Investment in Gold Increasing on Back of Strong Commodity Projections

by Ina King (Potgieter) February 13, 2020

Investment in Gold Increasing on Back of Strong Commodity Projections

On the back of a strong 2019, where it hit a six-year high of $1 553, analysts suggest that the price of gold could shortly surge past $1 600/oz. This is welcome news for gold miners in Africa as the yellow metal’s investment appeal – whether as physical gold (coin, bullion, jewellery) or through mining companies (stocks, exchange traded funds, etc.) – returns.

For mining companies, not only does this improve profitability of existing assets, it enables companies to scale up development of Grassroots gold projects on the back of promising longer-term projections for the commodity.

Of Africa’s 710 gold mining projects, 289 are in early development (Grassroots through Feasibility). Expect considerable movement across these gold mining projects across the continent in the near future.

And it’s not only gold investors and mining companies increasing their activities. From geologists, exploration and drilling companies and mining equipment OEMs, to soft service suppliers such as water and wastewater treatment companies, accommodation and catering, the entire supply chain for the gold mining industry is gearing up for gold’s upswing in fortunes.

What’s driving gold’s resurgence?

Gold has stood the test of time as a safe haven investment. Its performance is generally tied to economic volatility and increased stock market risk.

Factors including increasing geopolitical tensions, trade wars (principally between the U.S. and China), and most recently the emergence of coronavirus, have the potential to upset stock market confidence and increase demand for safer commodities, especially gold.

As it currently hovers between the $1 560 - $1 570/oz. spot price, this is an approximately 20% increase in value in 12 months, and experts are predicting further gains, with $2 000/oz. not an unrealistic prediction even in the short term.

The reaction from miners

Gold miners with strong assets, expansion and exploration opportunities and lower production costs are seen as the most attractive choices for gold mining stock (including royalties, exchange traded funds, etc.). These miners can leverage the highest gains from the metals’ increase in value, and therefore further develop strategic assets faster.

Africa has a large number of gold mining companies – established, mid-tier and junior – and savvy investors are investigating the potential of these companies’ assets before investing in stock.

So let’s take a closer look at Africa’s gold mining landscape.

Number of current gold mining projects, per country (min. 10 projects).

Gold is spread throughout the continent, with many countries operating gold mines. There’s a complete scope of industrial development across the continent, from the established, developed mining complexes of South Africa, to the rapidly developing industries of Central and West Africa.

This presents a variety of opportunities for mining suppliers and investors to target across Africa, with a vast demand for services, skills, equipment and technology.

Here is a breakdown of Africa’s mining projects according to projects phase (minimum 10 mining projects):

The top 5 gold-producing countries in Africa:

Ghana

In 2018, Ghana surpassed South Africa as the continent’s leading producer of gold, with over 117 tonnes produced that year. A far younger commercial-scale industry than in South Africa, Ghana offers a less capital-intensive production landscape, with investment-friendly policies, leading to a variety of new project developments. The country has over 100 gold mines, 11 of which have a capital value of over ZAR 1 billion (USD 67 558 894). You can read more about Ghana’s gold industry here.

South Africa

Even after a century of gold mining, South Africa remains amongst the world’s top producers of gold, with 101.3 tonnes produced in 2019. This is significantly less than a high of over 1 000 tonnes in 1970. Nevertheless, South Africa’s gold reserves remain among the world’s largest, at approximately 6 000 tons. The world’s deepest mines – including the deepest, Evander Gold Mine, which extends over 4 kilometres underground – are found in South Africa, reflecting the country’s long, sustained history of intensive gold mining.

Mali

Africa’s third largest producer of gold mined 61.2 tonnes in 2018. Mali has significant gold reserves, with a large number of projects currently in Grassroots and Pre-Feasibility stages. In the last year, a new bedrock gold discovery by Oklo Resources provided further proof of an industry with considerable growth potential. Much of Mali’s gold mining is artisanal, though there are many large miners as well, including IAMGOLD, AngloGold Ashanti, Barrick Gold and Randgold Resources.

Burkina Faso

The rapid growth of Burkina Faso’s gold industry is remarkable. Without a single modern commercial-scale mine until a little over a decade ago, today the country is Africa’s fourth-largest gold producer, mining an estimated 55 tonnes in 2018. It has 11 operational gold mines, and more than 40 additional projects currently in Pre-Feasibility, Feasibility and Grassroots stages of development, painting a picture of an industry with huge growth potential.

Tanzania

Mineral-rich Tanzania generates more than one billion USD through its gold mining industry. It has reserves of about 45 million oz., and thus considerable potential for growth in production.

Conclusion

Whether you are an investor in mining companies, or a supplier of mining services and equipment, a detailed understanding of which projects and companies to target will be critical to your success and assist in handling cost better.