South African miner, Gold Fields says booming gold prices could drive up half-year profits by more than 300%, and also generate a 10% rally in its shares.
The company says it is set to reap hefty gains as an ultra-low interest rate environment and expectations of more economic stimulus packages offset the economic impact of the pandemic have driven gold, its main product, to record highs.
In a trading statement by the company it said that,
“The increase in earnings for the period is driven largely by the increase in the gold price received.”
It said its headline earnings per share, the main profit measure in South Africa for the six months to June 30, were likely to be between 290% and 310% higher than the $0.05 per share reported last year.
The statement added that attributable gold equivalent production rose only marginally.
“Attributable gold equivalent production for the six months ended 30 June 2020 increased marginally with the contribution from Gruyere which only commenced production in July 2019 and increased production days, largely offset by the impact of Covid-19 stoppages at South Deep and Cerro Corona as well as the impact of the lower copper price at Cerro Corona, which resulted in lower gold equivalent ounces.”
Gold Fields has said the Covid-19 pandemic would have a limited negative impact on its performance, even though miners have had to shut operations during lockdowns and infections among employees.
Gold Fields kept its production guidance for the full-year at the same level, but said its costs could be higher than previously flagged after the attributable gold equivalent production rose during the first half.
Surge in Gold Prices
Gold has rallied past $2,000 per ounce for the first time ever, with spot prices jumping as high as $2,041 per ounce today, Wednesday 5th August 2020.
The metal’s spectacular rally is said to be as the result of a weakening dollar, which makes it cheaper for foreign investors to buy gold, as well as rock-bottom yields on other safe-haven assets like US Treasuries.
Some investors also fear that trillions in unprecedented stimulus from central banks could feed long-dormant inflationary pressures, and are turning to gold for protection.
Gold surged past the $2,000 mark also on Tuesday after Democrats and the White House appeared closer to agreement on new stimulus to help the coronavirus-hit economy while stocks on Wall Street traded mixed, as investors awaited more aid from Washington.
Lee Ferridge, head of North America macro strategy for State Street Global Markets said that,
“Markets on the other hand have lost confidence that Congress will approve enough stimulus to provide adequate benefits, leading the Federal Reserve to boost its balance sheet.”
Spot gold prices rose 1.42% to $2,004. 81 an ounce, after bids earlier hit highs of $2,009.134 an ounce.
Oil prices on the other hand, rose on the prospect of more stimulus but Treasury yields fell to their lowest since March on safe-haven demand and concerns about the ultimate cost of aid.
