How Has 2020 Treated Gold Miners, NST and SAR?

How Has 2020 Treated Gold Miners, NST and SAR?

The share price of two of Australia’s largest gold miners, Northern Star Resources Ltd [ASX:NST] and Saracen Mineral Holdings Ltd [ASX:SAR], are pushing higher thanks to positive trading updates.

Both gold producers have either come close to meeting or exceeded their production guidance for the financial year.

This was despite the disruptions caused by the coronavirus pandemic.

NST, the larger of the two, has produced the most share price growth, at time of writing.

The mining giant is up 5.67% or 79 cents to trade at $14.73 per share.

SAR, which has rebounded strongly since the market crash, has tacked on 2.33% to its share price to trade at $6.14.

ASX SAR - ASX NST Share Price Chart

Source: Tradingview.com

How to handle a virus if you’re a gold miner, NST and SAR in context

The chart above shows that NST (blue) and SAR (red) were pretty much neck and neck in terms of share price return leading up to the March crash.

Yet SAR appears to have pulled away.

There could be a few reasons for that.

NST fell just shy of its production guidance of the financial year (though it had withdrawn the target earlier because of COVID-19).

SAR exceeded its production target of 500,000 ounces of gold.

NST’s operations on the other hand, were hit by the COVID-19 outbreak.

The company’s Executive Chair Bill Beament described the impact at the Pogo mine in Alaska as ‘considerable’ and ‘challenging’.

NST recorded 36 cases of coronavirus at their mines in the June quarter.

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SAR braced itself for similar impact, which ultimately never materialised.

The company said it never had to implement its Plan B and operations continued as normal.

There are a few other points worth considering too.

NST said it would be reducing its hedge book to increase its exposure to the current spot price.

While SAR continued to add to its hedge book, which aims to hedge about a third of the company’s total production over the next three years.

NST will only hedge 15% over the same period.

These are interesting moves.

NST has about 540,000oz hedged at AU$2,085/oz.

SAR has a very similar amount hedged at AU$2,056/oz, but added another 72,300oz at AU$1,938/oz.

Now, there is nothing wrong with securing cash flows into the future.

It’s a smart move and plenty of companies do it.

Though NST and SAR appear to have different hedging strategies.

So, I guess we’ll have to see which one pans out best.

Gold price

NST’s share price appears to have experienced a higher amount of volatility compared to SAR.

This could be due to the disruptions it experienced throughout the COVID-19 lockdowns.

The strong upward momentum we’re seeing from the SAR share price could be due to the combination of the rebounding gold price and confidence they would hit production targets.

There has been a lot of attention given to gold over the past few months given the broader market uncertainty.

Which might explain a boost in stock price for NST today, despite just missing its original guidance — under most circumstances this would negatively impact the price.

Regardless of the hedging strategies of the two mining giants, the lofty prices of gold could be on the march upwards again as trust in the status quo deteriorates.

Some analysts are tipping it to hit US$2,000 by the year’s end.

You can read the 2020 gold bull case in exquisite detail here.

Regards,

Lachlann Tierney,
For The Daily Reckoning Australia