Gold has staged something of a recovery since June, thanks to the conflict in Ukraine and Iraq, and sanctions against Russia, but this fear effect appears to be wearing off, especially as US economic growth has remained strong, boosting the US dollar and eroding the investment case for gold.
As a result, the $34bn SPDR Gold Trust (NYSE: GLD.US) ETF is down by 1.9% so far this week, at $123.39, leaving it up by 6.3% so far this year. Similarly, a London-listed alternative, Gold Bullion Securities (LSE: GBS), has fallen 1.4% to $123.22 since Monday, leaving it up by 6.4% so far in 2014.
Mwana Africa shares rocket
One of the biggest fallers in the gold mining sector last year was Mwana Africa (LSE: MWA), which lost 75% of its value last year, thanks to a combination of financial and operational problems triggered by falls in the value of its two commodities, gold and nickel.
However, the firm’s decline has been reversed this year and Mwana’s share price has risen by more than 200% so far in 2014, taking it from 1.3p to today’s price of 4p. Mwana’s share price rose by 89% in July and has risen by 11% this week alone, as investors continue to return to the stock, following a strong set of results in July, which showed a 30% increase in revenue to $142.5m, and a net profit of $50.6m — although this fell to $22m once non-cash gains were excluded.
Although gold production was lower at Mwana’s Freda Rebecca gold mine last year, due to the failure of a leach tank early in the year, the firm’s all-in-sustaining costs remained firmly below the market price of gold, at $1,186 per ounce, demonstrating the mine’s genuine profitability.
Analysts are forecasting earnings of around 1p per share for Mwana in 2014/15, putting the shares on a forecast P/E of around 4, which seems low. However, the risks surrounding the firm’s operations in Zimbabwe, the Democratic Republic of Congo and South Africa are considerable, and this may be reflected in the current share price.
Roland Head owns shares in Mwana Africa. The Motley Fool has no position in any of the shares mentioned.