2020 has been a bullish year for gold up to this point with gold prices headed for seven-year highs over US$1,750 per ounce. On Monday, Canada’s main stock index future rose, supported by firmer gold prices against global concerns related to rising coronavirus cases.
Gold futures rose as much as $1,767.6 an ounce, hitting a one-month high, as investors were drawn to safe-havens.
Although gold miners have had to suspend operations in accordance to government mandates to stem the spread of the virus, an impending demand-supply imbalance has proven favourable for gold prices. In combination with the gold-price rally, the Gold Mining industry has gained 24% year to date, against the S&P 500’s decline of 6.6%.
The gold mining industry currently carries a Zacks Industry Rank #802, which places it at the top 32% of 256 Zacks industries.
Higher gold prices are good news for junior gold miners although they won't necessarily lead immediately to more projects in Canada, according to Kevin Chan, national mining leader for PwC Canada.
"Companies are still using a relatively conservative gold price assumption," he said. "A lot of them are still planning and looking at their future development projects using lower gold prices, somewhere between $1,200 and $1,300."
For now, it seems that gold miners have learned from the last boom to avoid taking on big debt and risks to increase production. We are seeing an increase in merger and acquisition activity among mid-sized and junior gold mining companies. Conservative attitudes are also reflected in Canadian gold miners striking share-swap or zero-premium deals.
Overall, Canadian gold companies have had an advantage over other parts of the economy because most mines in Canada have been able to stay open most of the time despite pandemic lockdowns.
Toronto-based LabGold is one of the junior gold miners that reacted quickly and snapped up mineral claims covering 66 square kilometres just to the north of a new find. It proposed the Kingsway Gold Project, then went to the market with a $3.5-million equity financing offer in May. Strong investor interest led to raising the proposed financing to $5 million, and then again to $5.3 million, more than enough for this summer's exploratory drilling program.
Other Canadian junior miners will likely also attempt to benefit from current elevated prices and move towards joint ventures and phased approaches to build larger mines. At the same time, smaller projects will have the advantage of lower initial capital outlay and faster timelines to production.
For the first time in decades, junior gold mining companies are enjoying more investor interest than big players.
"Small companies have been struggling for quite a few years and it's quite refreshing to see that people are now coming back to the junior mining market," Katherine Wetmore, a partner with KPMG Canada said.