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Commodities

Australian gold miners rush for funding amid rising metal market

Renewed investor appetite pushes even old concerns to restart digging

SYDNEY -- Australian gold miners are set for a prosperous 2021 as the high price of the yellow metal boosts profits, encouraging a search for resources that now looks far more promising than a year or two ago.

Gold hit a record $2,067 per ounce in August. While the price has since eased, it has stayed above $1,800 as investors stick to the safe-haven asset amid the coronavirus pandemic and the ensuing global economic downturn. The weak U.S. dollar and low global interest rates are also helping the gold price by minimizing the downsides of investing in the metal.

Large gold producers and so-called junior explorers have responded by rushing to capital markets, seeking funds to restart shuttered mines or explore and develop new projects.

"There is increased interest in the gold sector and also a growing appetite to fund early stage exploration, which we haven't seen for quite some time," said Anna Nahajski-Staples, executive director at Moneghetti Minerals, which plans to drill at two greenfield exploration projects in the U.S. state of Nevada and another in Western Australia.

Moneghetti hopes to raise $8 million to $10 million in an initial public offering on the ASX, the Australian stock exchange, by the middle of 2021.

Other gold juniors to have recently raised funds for exploration and development in Australia include North Stawell Minerals, Bardoc Gold and DevEx Resources.

"The interest has really come down the food chain. Previously it was a market where investor interest was around near-term production or already producing mines, to de-risk as much as possible," Nahajski-Staples added. "Now, with such large margins coming into the picture, they are able to look at earlier stages and take higher risks."

Even old gold mines that had ceased output years ago are resuming production. These include the Katanning project in Western Australia, Horizon Gold's Gum Creek project and AuStar Gold's Morningstar mine in Victoria.

The strong investor appetite for gold has also enabled fundraising on the ASX by companies focused on overseas assets, such as Megado Gold, which is drilling in Ethiopia; Mithril Resources, which developing a gold-silver project in Mexico; and Sihayo Gold, which is exploring in Indonesia's North Sumatra.

The gold sector accounted for the largest proportion of funds raised among all resource companies on the ASX in 2020.

Gold companies raised 761 million Australian dollars in the September quarter, and followed up with another AU$812 million in October and November. At least a dozen junior explorers have also hit the market with initial public offers in the last two months to tie up funding for drilling at prospective projects.

"We're seeing the need for a lot more capital -- particularly at the small- to mid-end -- since there are a lot more companies that are exploring because the price is making it lucrative to do so," said Romano Sala Tenna, a portfolio manager at Perth's Katana Asset Management.

Indeed, gold exploration spending touched a record AU$1.2 billion in the 12 months to October 2020, a government review found, accounting for 42% of all mineral exploration expenditure in Australia.

Gold projects worth AU$3.9 billion have been "committed" during that period and another 17 reached the "feasibility" stage. If all the projects were realized over time, Australia's gold production would increase by a third, it said.

Bumper gold prices and production have been a boom for Australian government coffers, with official estimates predicting that gold will displace coal to become the country's third-biggest export after iron ore and gas in the financial year ending June 2021.

Australia produced 315 metric tons of gold in 2019, accounting for about 10% of world production, second only to China.

The continent holds nearly 19% of the world's gold reserves -- the most for any country. But much of this is located in remote locations that have limited infrastructure. The increase in prices, coupled with improved technology, have now made it easier to raise money to develop lower grade assets or those in difficult locations.

The strong price is also driving deal-making in the sector. Northern Star Resources and Saracen Minerals, Australia's second- and fourth-biggest gold producers by market value, agreed to merge in October while smaller players Dacian Gold and NTM Gold agreed to merge in November to form a mid-tier gold producer.

"I'm pretty certain we'll see more gold mergers and acquisitions happening over the next year," said Sherif Andrawes, head of natural resources at accounting and consulting company BDO.

"Gold companies, when they come together, can actually produce quite a lot of synergies. And gold M&As make a lot of sense," Andrawes said. "[It] is about getting bigger, getting access to indexes and getting the attention of gold ETFs."

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