Gold Bounces From 2014 Low: Updates From Petropavlovsk PLC & Highland Gold Mining Ltd

goldAfter hitting a low of $1,207.05 per ounce on Thursday, gold for immediate delivery has recovered strongly and is trading at $1,226 per ounce, around 0.7% above last week’s closing price.

As a result, physical gold ETFs have also drifted lower. The $33bn SPDR Gold Trust (NYSE: GLD.US) ETF has fallen by 0.8% to $117.39 since last Friday, cutting its gains for the year to date to just 1.1%.

Over the same period, London-listed Gold Bullion Securities (LSE: GBS) has slipped 0.1% to $117.36, leaving the fund’s shares just 1.4% higher than they were at the start of 2014.

Gold mining update

Last week I reported on the dilutive rights issue launched by Petropavlovsk (LSE: POG) as part of the troubled gold miner’s debt restructuring. Investors have continue to sell-off the Russia-based company’s shares, which have fallen by 15% to 28p over the last week, leaving the company with a market cap of just £55m — but net debt of £948m, which is where the problem lies.

In my view, Petropavlovsk will struggle to make any profit on gold sales once its current forward sales agreements, which added an average of $93 per ounce to gold sales during the first half, are exhausted — probably later this year. The firm’s shares have fallen by 97% over the last five years, and shareholders face a very real risk of being completely wiped out, in my opinion.

Elsewhere, Highland Gold Mining (LSE: HGM) released a solid set of half-yearly results earlier this week, with gold production up 13.7% on the same period last year and all-in sustaining costs down by $12 per ounce to just $900, highlighting the firm’s solid profitability at lower gold prices. The interim dividend was maintained at 2.5p, which equates to a 4.6% yield at today’s price, without factoring in the final dividend!

However, although Highland Gold Mining expects full-year production to rise by at least 20% this year, the company’s net debt rose sharply last year due to capex commitments. The board has not committed to maintain last year’s 2.5p final dividend, saying instead that future dividends will be paid ‘bearing in mind the capital requirements necessary to support the expansion of the group”. In my view this could point to a cut, and analysts’ forecasts suggest agree, suggesting a total payout of 4.2p this year and 3.1p next year.

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Roland does not own shares in any of the companies mentioned.