Soaring prices stoke gold executives' bullish outlook

From the Australian: A GATHERING of the world's leading gold mining companies in Denver offers a marked contrast to that of two years ago.

During the September 2008 Denver Gold Forum mining conference, the gold price was declining as investors sold just about everything in panic, and mining companies' shares were being pummelled even harder.

Now, gold is trading just shy $US1300 an ounce, and the record prices are boosting margins.

That is making lower-ore-grade projects economically viable, allowing for the prospect of raised shareholder dividends and spurring a flurry of acquisitions while the companies also keep their own drills turning.

"We're going to have excess cash," Vancouver-based Goldcorp chief executive Chuck Jeannes said on the sidelines of this year's forum, which drew a record of more than 1000 attendees. "We have the ability to fund all of our capital needs with internal liquidity."
Across the board, the heads of gold mining companies were bullish on the metal, even as prices reach never-before-seen levels.

"We can see $US1300 by the end of this year and perhaps $US1500 by the end of next year," said Ebe Scherkus, chief operating officer of Canada’s Agnico-Eagle Mines.

Mining companies attribute their upward price outlook to increased investor interest in the metal as a safe haven amid financial-market uncertainty and sovereign debt fears.

They also note gold's perceived role as a currency and inflation hedge, and that central banks have shifted to net buyers of the metal.

Ultra-low interest rates also continue to support gold by lowering the opportunity costs of owning the metal, which pays no interest itself.

They say demand will outstrip flat or declining mine production.

"There is a very compelling investment case for ... the gold story," Barrick Gold chief executive Aaron Regent said.

Investors are seeking to expand the metal's presence in their portfolios, said Richard O'Brien, chief executive of Newmont Mining, the world's second-biggest gold producer after Barrick.

"Gold is underheld," Mr O'Brien said. "People are re-examining the role of gold in their portfolios. I think that bodes well for the price of gold."

The high gold prices have helped boost global gold mining mergers and acquisitions, a trend which the miners see continuing.

Deals in the global mining sector have topped $US100 billion ($105bn)so far this year, with gold sector deals accounting for nearly 40 per cent of all deals by volume year-to-date, according to PricewaterhouseCoopers.

Notable acquisitions include the $US7.1bn purchase of Red Back Mining by Canada's Kinross Gold, and Australian producer Newcrest's acquisition of rival Lihir Gold $US10bn.

"There just is not much new gold being found," Kinross president Tye Burt said.

So larger mining companies are continuing to buy up smaller producers and explorers to enhance their reserves.

"I do think you'll see more deals," Goldcorp's Mr Jeannes said. "We (mining companies) deplete our resources every day. You have to either find new resources or buy them."