In a market where the USD has continued to gain on almost every currency in the world, it is the “oldest currency in the world”, gold, that has been one of the best performing assets in 2015. Gold’s current performance is similar to how it did at the beginning of last year (and we can see how that ended..), but one of the reasons for its downfall last year is now a reason for why it has done so well in 2015.
The thinking last year was that with the twin themes of USD strength and investors searching for carry, gold was unattractive on both counts. So given that USD strength has continued, the change in sentiment has been in what constitutes carry. With rate cuts now the norm (except in the US for now..), and investors staring down at negative yields in Euro, Yen, and Franc, an asset with no carry such as gold no longer looks so bad. Also, in a market where investors are retreating after huge shock moves such as in CHF and oil, a zero yield safe haven asset like gold starts to make sense. This is why long gold has been one of the more popular macro trades we have seen so far in 2015.
With this in mind, we decided to look at flagship gold companies in the biggest gold producing frontier market countries. Using data from the US Geological Survey, 5 frontier market countries are in the top 14 gold producers rankings: Chile, Ghana, Papua New Guinea, Peru, and Uzbekistan.
Chile: Yamana Gold (honourable mention: Barrick Gold Corp)
Canadian mining companies are among the most active in Chile. Yamana Gold operates two mines in the country: El Peñón and Minera Florida. But most discussions about Barrick and gold mining in Chile is centered around the troubled Pascua-Lama mining project. After beginning the project in 2006 and having spent up to $8.5 billion developing and shutting down this project, the project still looks far from production with significant political opposition on environmental grounds.
The latest official word is that Barrick “signed a Memorandum of Understanding (MoU) with a group of 15 Diaguita indigenous communities and associations in Chile’s Huasco province. The MoU marks the first step in establishing dialogue and working to build trust with members of this important stakeholder group.” While pessimistic, any positive developments would be pure gravy at this point.
Ghana: Gold Fields Ltd
Ghana is Africa’s second largest gold producer after South Africa, but the downturn in gold prices from 2013 hurt production. Despite this, Gold Fields Ltd from South Africa has been a market leader with their Tarkwa mine, the largest in the country. Gold Fields owns 90% of this mine with the other 10% owned by Ghana’s government. Gold Fields also owns the Damang mine in South-Western Ghana.
Papua New Guinea: Barrick Gold Corp
Showing their presence in frontier markets, Barrick owns 95% of the Porgera Gold mine through their ownership of Porgera Joint Venture (PJV). The mine has been in operation since 1990, showing how impressively productive it has been over the past 25 years.
Peru: Buenaventura (honourable mention to Newmont Mining Corp)
Finally we have a local mining company in Buenaventura, the largest operator in Peru. They also co-own Yanacocha, the largest gold mine in Peru (and second largest in the world), with Newmont Mining Corp.
Buenaventura is a company we featured in a post last year, please check it out here.
Uzbekistan: Navoi Mining & Metallurgy Combine
Navoi is a state-owned enterprise that operates the Muruntau gold mine, the largest and deepest open air gold mine in the world. Navoi has a duopoly with Almalyk Mining and Metallurgical Co., and are ramping up expansion in Uzbekistan. This article is great as a primer for mining in Uzbekistan, but foreign investors should be wary with Newmont being kicked out of the country in 2006.