Shelter From Gold Rout: Australian Miners Provide Safe Haven – by David Stringer and Jasmine Ng (Bloomberg News – July 24, 2015)

As gold prices have sunk to the lowest level since 2010, canny investors are seeking refuge in Australian gold mining stocks.

The key is the plunging Australia currency that’s helping local producers boost margins even as the U.S.-dollar denominated metal slides. While spot gold tumbled 16 percent in the past year, the metal’s price in Australian-dollar terms has risen about 8 percent.

That’s helped the S&P/ASX All Ordinaries Gold Index of 21 Australian miners gain 12 percent this year as of Thursday, as the benchmark Philadelphia Stock Exchange Gold and Silver Index slumped 31 percent.

Suppliers in Australia, the second-largest producing nation, benefit by selling the metal in U.S. dollars while their costs and profits are mostly denominated in the weaker local currency. The Aussie fell Friday to a six-year low.

“A weak Australian dollar against the U.S. dollar powerfully expands Aussie miner margins,” William Kaye, the Hong Kong-based owner of The Pacific Group Ltd. and chief investment officer of its Greater Asian hedge fund, said in an e-mailed response to questions. This would make Australian miners attractive to investors, he said.

Newcrest Mining Ltd., Australia’s largest producer, said Thursday its margin increased 13 percent in the year through June as it raised output.

Looking for Winners

Investors looking for winners amid price declines will be noting gains by producers including Northern Star Resources Ltd. and Evolution Mining Ltd., Kaye said.

Both producers have made recent acquisitions of mines in Australia, extending their exposure to the falling local currency and adding to their appeal for global investors, RBC Capital Markets said in a July 8 note.

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