IT stands to reason that in the mining world, the best defence against commodity price weakness is to be the lowest-cost producer. That goes doubly for the gold sector after last year’s price collapse.All that has panned out for those investors who responded to the massive shakedown in the gold price and equity values last year for gold producers not by fleeing altogether, but by seeking safe harbour in the lowest-cost producers.
They have been doing very nicely, thank you very much. Australia’s lowest-cost (listed) gold producer, Doray Minerals (DRM), is a case in point. Its cash costs are the lowest in the local industry if Newcrest’s Cadia operation, which gets the benefit of a copper credit, is ignored.
It’s hard to believe now but Doray got as low as 35c a share last July when the shakedown for gold stocks was in full swing. Realistically, some of that weakness was due to the fact that the group’s new Andy Well operation, north of Meekatharra in Western Australia, had yet to pour its first gold, meaning it had yet to prove itself.
It has proved itself all right since, with Doray reporting production of 24,000 ounces for the December quarter, its first “full” quarter, at a cash operating cost of $448 an ounce and an “all-in sustaining cost” of $949 an ounce. With the help of some hedging, the gold was sold at an average price of $1472 an ounce.
So despite all the bad press about the pressure on the industry from last year’s gold price dump, the high-grade nature of Andy Well gave Doray the best defence of all – low cost production. That’s why Doray, which started out the calendar year at 52c, has since motored along to 83c yesterday.
The stock is now up 135 per cent on its level in July last year, and 58 per cent on its starting point for the new year.
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