Brexit double whammy great for these gold miners
Gold has consolidated its post-Brexit gains this week hitting a two-year high on a closing price basis on futures markets in New York.
But the metal is down sharply from its intra-day high of $1,362.60, the highest since July 2014, struck on Friday.
While the pullback is somewhat disappointing, some gold mining companies are benefitting from the Brexit fallout not just from an appreciating gold price.
In a new research note Moody’s Investors Services assessed the impact of the vote to leave the EU on the financials of AngloGold Ashanti and Gold Fields.
Gold and the US dollar usually move in opposite directions, but Brexit drove a higher gold price and a stronger dollar as investors bought US treasuries, resulting in a 4% depreciation of the Australian dollar (AUD) and a 9% depreciation of the South African rand (ZAR) relative to the greenback.
AngloGold Ashanti derives around 14% of its gold production from Australia and 26% from South Africa while Gold Fields derives 43% from Australia and 10% from South Africa says Moody’s:
As a result of Brexit, AngloGold Ashanti could generate an additional $120 million in free cash flow in the second half of 2016, while Gold Fields could add an additional $50 million in free cash flow. We base this on a gold price of $1,300 per ounce and exchange rates of AUD1.35 per US dollar and ZAR15 per US dollar.
At a $1,200 per ounce gold price, and slightly weaker exchange rates of AUD1.40 per US dollar and ZAR16 per US dollar, we forecast second-half 2016 free cash flow generation of around $185 million for AngloGold Ashanti and $135 million for Gold Fields.
On Monday, AngloGold Ashanti (NYSE:AU), the world’s third largest gold producer in terms of output, added 4% for a market value of $8 billion on the NYSE. The Johannesburg-based miner, which produces some 4 million ounces a year is up 145% since the start of the year and trading at its highest since August 2014.
Fellow South African miner Gold Fields (NYSE:GFI) is ranked seventh in terms of output and is targeting 2.1 million ounces in 2016. Gold Fields shares are up 67% in value this year affording the company a $4.3 billion market cap in New York.