Gold export ban halts Tanzanian mining merger, but trend is undervaluation
Tanzania’s gold and copper exports ban has stalled the merger between London’s Acacia Mining and Endeavour Mining Corporation of Canada.
The early March ban, legislated by the Tanzanian government on protectionist, localist grounds, has increased uncertainty around the future of business for some of Africa’s biggest gold miners.
Cityam reported that Acacia, which gains around 30% of its revenues from Tanzania, was receiving slow replies from the government, which they had petitioned for clarification on the policy’s future.
After the ban was announced Acacia’s shares fell 19%, and were still 15% lower upon Friday’s close.
Analysis of mining trends was a main topic in March’s Atlas Pulse report. According to trends since 1994, the gold price should be on average 53 times the value of a unit in the Blackrock Gold and General fund (BGAG). It is currently only 44x the value of a single unit.
One of the main problems, according to the report, is that miners are valued according to profits, rather than future potential and ‘real value’, and profits have been slim and sensitive to gold price shocks:
‘To put it another way, if the gold miners are currently fair value versus gold, then they must have been 5x overvalued in 1996, 4x in 2007 and 70% dear at the depths of the credit crisis. This does seem rather unlikely and so they must be undervalued,’ writes Atlas Pulse’s Charlie Morris.
A strong dollar and interest rate rises may be putting the gold price on the backfoot, but cheap and undervalued mining stocks may be a good bet once they come back into more rational valuation; once inflation comes back into the fray under Trump’s tenure the gold price will follow, and therefore mining stocks too, believes Morris.
The expectation of Fed interest rate hikes has all but cemented a prolonged dip in the gold price, which has slumped 5% since February. Bond yields have also risen on the back of the likelihood of the hike.
Link to this article: : http://www.goldmadesimplenews.com/mining/gold-export-ban-halts-tanzanian-mining-merger-but-trend-is-undervaluation-13024/