Strong tailwinds will push gold producer margins to over 50%

Strong tailwinds behind the gold price will push gold producer margins to over 50%, Junior Miner Junky newsletter editor David Erfle told Kitco Mining’s Digging Deep. Erfle said the backdrop to the gold price rising to more than US$2,700/oz includes the out-of-control, sovereign debt crisis, central banks buying up gold like crazy, real interest rates going lower, geopolitical unrest all over the place, a chaotic US election about to take place and the BRICs (Brazil, Russia, India and China) meeting in Russia this week looking to build an alternative platform for international payments outside the US dollar. “The gold price has got so many tailwinds now. There really isn’t any headwinds,” said Erfle. As gold companies begin to report their 3Q24 earnings, investors are expecting the higher gold price to drive margin growth and bumper profits. With balance sheets becoming loaded with cash, Erfle thinks this will spur more acquisition activity or else face investor calls to return more to shareholders. “With minors generating so much free cashflow, they have little choice but to make acquisitions and strategic investments. Miners feel increased pressure to add more ounces via takeovers of undervalued late-stage juniors and small cap, single asset growth-oriented producers,” said Erfle. Erfle also commented on how high interest rates are seeing gold developers like Rio2 (TSXV:RIO) and Montage Gold (TSXV:MAU) opt for non-traditional finance, such as streams, to fund mine builds. “Streams can be more capex friendly and with minimal dilution. …I t is a necessary evil for the junior developers to limit their dilution. … They are sacrificing less ounces down the road for less dilution now,” said Erfle.