Africa gold producers wary despite price rebound

Renegade Gold

07/04/2016 16:14

By Edward McAllister 
    DAKAR, April 7 (Reuters) - A steep rise in gold prices may 
have given hope to a battered mining industry in 2016, but after 
four tough years producers in Africa are still too wary to call 
the bad times over. 
    Gold prices surged 15 percent in the first three months of 
2016, the biggest quarterly rise in nearly 30 years, boosting 
miners' share prices, attracting new investment and promising to 
bolster the economies of gold-rich countries.  
    Experts say the rebound could spur development of major 
unexploited deposits after low prices since 2012 crippled 
exploration and made countless projects unprofitable. 
    Still, Africa-focused gold producers are not quite ready to 
make investment decisions because of a brief price rise. Prices 
have often spiked in recent years only to quickly retreat - 
indeed, the recent rally has stalled in the last few weeks after 
the very strong start to the year.  urn:newsml:reuters.com:*:nL5N17721U  
    Prices aside, some industry experts say a recent spate of 
takeover bids could be another indication of a sector recovery.  
    Amara Mining  AMARA.L , which has projects in Ivory Coast 
and Sierra Leone, was subject in February to an $85 million bid 
by Australia's Perseus Mining  PRU.AX .  urn:newsml:reuters.com:*:nL3N1670TM 
    Canada's Endeavour Mining  EDV.TO , which owns gold mines in 
Ivory Coast, Mali and Ghana, is in the process of taking over 
TrueGold  TGM.V , another West Africa-focused miner.  
    At two major industry conferences he attended last month, 
Amara Chief Executive John McGloin said there was a sense that 
things could be turning around. But no one was getting overly 
excited. 
    "People weren't high fiving," he said. "There is confidence, 
not exuberance."  
      
    OPTIMISTIC CAUTION 
    Gold prices  XAU=  dropped from over $1,900 an ounce in 2011 
to near $1,000 at the end of last year. Mines that were 
profitable at $1,500 suddenly became loss-makers. Exploration 
halted; share prices dived.  
    Gold production has remained robust, mainly due to 
production from existing mines. Without major new exploration, 
however, output could drop in the years to come.  
    Prices are now over $1,200 per ounce, helped by low interest 
rates. The cost of producing gold, which came down during the 
slump, remains low for now, which could aid exploration efforts. 
    Endeavour Mining  EDV.TO  has seen its production costs fall 
from $1,137 an ounce to around $900. At its Agbaou mine in Ivory 
Coast, it produces gold at about $700 an ounce.  
    "There is optimistic caution," Endeavour Chief Executive 
Neil Woodyer said. "It is a time for getting ready rather than 
any huge commitments." 
    Endeavour, whose share price rose nearly 50 percent in the 
first three months of the year, expects to spend $14 million 
this year in "non-sustaining exploration", or exploration 
involving new finds, up from $8 million last year. It hopes to 
soon begin construction of the Hounde mine in Burkina Faso that 
over 10 years will produce about 1.9 million ounces of gold.  
    Investors are taking notice.  
    "Over the last two years they have been in defensive mode 
and cutting costs, now they are starting to generate cash," said 
Andrew Breichmanas, analyst at BMO Capital Markets in London.    
    Erich Meier, who runs a suite of gold funds at Konwave AG in 
Switzerland, said his funds have yielded over 60 percent this 
year, a rebound from a drop of 27 percent last year. 
    "There are further risks remaining for an attack on gold 
prices." Meier said. "But we are entering into a three-to-five 
year bull market." 
    Randgold Resources  RRS.L , a firm with mines across Africa, 
stood out from peers by continuing to explore through the 
downturn. Last year it produced a record 1.2 million ounces of 
gold, it said in a statement last week.  
    According to Randgold Chief Executive Mark Bristow, however, 
the industry needs more time to recover and generate cash. Much 
of that will depend on the market. 
    "The gold price has to get over $1,500 to change the 
viability of the industry," said Bristow.  
    "There is no way that will happen this year." 
 
 (Reporting By Edward McAllister; Editing by Joe Bavier and 
David Evans) 
 ((edward.mcallister@thomsonreuters.com; +221 33 864 5782; 
Reuters Messaging: edward.mcallister.reuters.com@reuters.net)) 
 
Keywords: AFRICA MINING/