Gold investors are accustomed to waiting. We routinely wait for years as exploration projects slowly progress toward production. We've waited about 16 months for gold to break out of this overdone correction.
We continue to wait for people to stop presuming we're some kind of lunatic fringe. As long-awaited confirmation of our forecasts for a weakening dollar emerge with ever-increasing clarity, that wait may soon be over.
By far the easiest thing to wait out involves the seemingly universal setbacks to mine development timetables. Newmont Mining (NYSE: NEM ) announced a slight delay for starting up its exciting new Boddington mine in Australia, with production now expected sometime in August. Capital spending will now reach the high end of guidance, for total development costs of about $2.9 billion, but the investment should pay off in spades over a 24-year mine life. With 1 million ounces of annual production expected for the first five years, Boddington would be Australia's largest gold mine and promises substantial profitability with expected costs of just $300 per ounce.
While investors wait patiently for the next monster move in gold prices, slight delays like the one announced by Newmont and Agnico-Eagle Mines' (NYSE: AEM ) one from May could be viewed as a blessing in disguise.
And second-quarter earnings for Newmont were certainly not what I had anticipated. The move to purchase AngloGold Ashanti's (NYSE: AU ) stake in the Boddington mine resulted in a $59 million charge, on top of a major tax burden of $136 million. On an adjusted basis, net income of $213 million was far less of a drop from 2008 levels than the profit of $162 million trumpeted in headlines. Still, I believe that earnings growth is no longer something that gold investors should be forced to wait for.
I see a pot at the end of the rainbow for patient gold investors, and I suspect the wait is nearly over. The dollar has fallen below a level of critical support amid bold statements from China regarding redeployment of some dollar reserves. Meanwhile, management from a slew of quality miners from Yamana Gold (NYSE: AUY ) to Kinross Gold (NYSE: KGC ) see production ramping up during the second half of 2009. Goldcorp (NYSE: GG ) and its world-class Penasquito mine are on schedule, and Royal Gold (Nasdaq: RGLD ) is acquiring royalties left and right.
I anticipate tremendous earnings growth for the sector over the coming quarters and see Newmont Mining among the likely outperformers.
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