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00:00Last September, we showed you how Australia's gold miners were cashing in.
00:04And that was when gold was at $3,600 an ounce.
00:08It's jumped much higher since then.
00:10Our colleague Paul Allen saw firsthand how miners are now putting that cash to work.
00:17In the Australian outback, scrub and red dust stretch as far as the eye can see.
00:23It's desolate out here and it's dry.
00:26But beneath the dust, there's a bounty that miners are willing to dig a long way for.
00:31How many ounces of gold would be in a typical truck?
00:34So there'd be around 500 grams of gold in a truck.
00:38So we've got a line of trucks slowly making their way out of the pit here.
00:42How long does it take to get from the bottom to the top?
00:44Yeah, it's well over an hour.
00:46The Kalgoorlie Super Pit in Western Australia is the sight to behold.
00:50More than 600 metres deep, it would cover even Manhattan's taller skyscrapers.
00:56It's so vast, it'd swallow Central Park.
01:00This project's going to be an important one for our business and our shareholders.
01:03Stuart Tonkin is CEO of Northern Star, Australia's biggest gold miner.
01:08Probably around $300 to $400 million per annum being spent moving material from the southern part of this pit,
01:13gaining access to over 6 million ounces of gold in the bottom of the southern part of this pit.
01:18The price of gold has been on a tear.
01:21Tonkin's company and many others around Kalgoorlie are cashing in.
01:25But the gold industry has been here before.
01:28There's probably more failure stories than success stories where people can point to in the gold sector.
01:34And so repairing a lot of that trust with investors as we go into another cycle
01:40has been really important for our company and I think for many Australian companies to get that investor trust.
01:46Two of the dominant players in Australian gold mining, Northern Star and Evolution, are reaping the rewards,
01:53seeing the return on investment from projects planned years ago now surging.
01:58Laurie Conway is CEO of Evolution Mining.
02:01So back in June 23, we made the decision to invest $250 million building this plant expansion
02:07and $75 million to open up a new mining centre into the north here to feed the plant,
02:13taking it from 2 million tonnes to 4.2 million tonnes.
02:17And in 23, it was pretty difficult.
02:20The market was hot.
02:21It was hard to get people, hard to get equipment.
02:22I think we were very fortunate when we did that.
02:26But, you know, gold price was only $2,400, $2,500 an ounce when the board approved this.
02:31And it had very good economics.
02:33I mean, bringing it in right now at $5,000, $5,200 an ounce is a perfect time to be commissioning it.
02:39In 2019, Evolution reported adjusted gross profit of about $270 million US dollars,
02:46or about $410 million Australian dollars.
02:49That's now jumped to about $1 billion.
02:52It's expected to grow even further to almost $2 billion.
02:55And how about on the costs front?
02:57What's that like at the moment?
02:58Because, you know, I imagine your diesel bill must be pretty high.
03:02Yeah, diesel's only about 4% of our cost.
03:05Power will go up because we're obviously doubling the processing,
03:08and the processing uses power.
03:1050% of our costs are labour.
03:12And investors are keeping a keen eye on costs this time around.
03:16When gold prices last jumped, Australia's gold miners underperformed,
03:20falling 16% in the three years from 2010,
03:24while the price of the metal itself rose 52%.
03:27Kate McCutcheon covers Australia's gold miners for Citi.
03:31So last cycle, we definitely saw a lot of transformative M&A,
03:36which was very value destructive.
03:38So that last cycle from 2000 to 2012,
03:41the 10 biggest gold stocks in our coverage universe
03:44cumulatively burnt $10 billion in free cash.
03:47As an industry, we've made those missteps
03:49because when the price did come off and that cycle changed,
03:53shareholders went, well, where's the cash?
03:55And all the industry said is, well, we reinvested it into projects
03:58or we went and bought assets,
04:00and therefore we've reinvested that money for you.
04:03And the shareholders were like, well, we would have liked some of that,
04:05and we didn't see that.
04:07It hasn't changed too much, I mean,
04:09other than that we're putting more cash in the bank,
04:11which is what our shareholders want to see.
04:13So it's interesting you say you've got more cash in the bank.
04:16Has this changed your approach to reserve management
04:19and long-term planning as well?
04:21You know, you've got to see it as a sustained price at these levels
04:24because you can't just change your mine plans overnight.
04:27So what it does mean, we look at our reserve pricing,
04:30we look at what the costs have changed
04:32because you do see costs generally follow the gold price.
04:36And then we look at, well, what projects become more economic
04:38in a higher price environment,
04:40and then we apply the normal discipline
04:42of when do you bring those on?
04:45Look, I think it's important that you look at a lot of these things
04:47in hindsight, some things like hedging, you know,
04:50hedge book legacy at prices that people had never thought
04:53that they would, you know, see exposure to.
04:55You know, when people had a high equity price,
04:58they probably tried to use that currency
05:00by raising lots of money on the back of an elevated equity price
05:03and then potentially dropping money out of their balance sheet,
05:07return capital to shareholders that then wasn't retained
05:10for its own sustainability inside the business.
05:12So there are very many different disciplines
05:14of what people do at different times.
05:16And do you feel lessons have been learned?
05:18Do you feel like the approach is different this time?
05:20I feel that the heat has come out of some of that,
05:23but I've found a foundation discipline
05:26of true capital management across a variety of things.
05:29So, you know, dividend-paying gold companies
05:31was never really heard of.
05:33There's a lot of good track record
05:34of gold companies paying dividends,
05:36doing share buybacks, compressing registers
05:38that they had raised equity on the back of.
05:41Those are the type of capital management measures
05:43that aren't typical to a gold company.
05:46Even after its recent sell-off,
05:49gold is up more than 60% over the past year,
05:52a rise that has come in part
05:54because the U.S. dollar has gone in the opposite direction.
05:57Robin Brooks is a senior fellow
05:59at the Brookings Institution
06:00and former chief currency strategist at Goldman Sachs.
06:04We talked with him before the most recent volatility.
06:07So this move in gold started after Jackson Hole
06:13on August 22nd last year.
06:16Basically what's going on is there is this fear
06:21that fiscal policy, not just in the United States,
06:25but heavily in the United States,
06:28fiscal policy has been out of control for so long.
06:30We are running deficits in non-crisis,
06:34peaceful times of 5%, 6% of GDP.
06:38We've never really done that before.
06:40And so there's a fear in markets
06:41that fiscal policy is just out of control.
06:45And the only way to get debt
06:48to sustainable levels is to print money
06:52and to inflate our way out of over-indebtedness.
06:55And so my view is that this gold rally
07:01is one particular manifestation
07:04of really a debt sustainability fear
07:08and a fiscal crisis.
07:11That is why you're seeing long-term yield
07:15all over the world rise.
07:17So debt is a global problem.
07:20And I think what the gold rally tells you
07:23is markets have kind of run out of patience.
07:26They're looking for safe havens.
07:29So who's buying the gold?
07:30I mean, the price wouldn't go up this high
07:32unless you didn't have a lot of people eager to buy.
07:34Either more buyers, new buyers,
07:36or current buyers who are willing to pay more.
07:37So the most common thing I hear
07:42is that this is about central banks buying gold.
07:45And the story basically goes that
07:48the United States and a bunch of other countries
07:51put a lot of sanctions on Russia
07:52after the Ukraine invasion.
07:54And so countries don't want to hold U.S. dollars
07:57in their foreign exchange reserves.
07:59They're shifting into gold.
08:01And it's true that they are buying,
08:03but they're buying at a steady pace.
08:06The pace hasn't accelerated.
08:08So it definitely doesn't explain
08:10this crazy run-up in precious metals
08:13that we've seen since August.
08:15So central banks, I think, are not the explanation.
08:18I think, like in every historical bubble,
08:21going back to the tulip mania,
08:24this is basically about animal spirits
08:27and the retail investor
08:29and people who are worried about
08:31their retirement savings
08:33getting eroded by inflation
08:36and so seeking safety
08:38in things that they think will preserve value.
08:41If it dates back to Jackson Hole last summer,
08:44what happened to Jackson Hole that triggered that?
08:47I mean, we've had a debt problem
08:48in the United States for some time.
08:51Jackson Hole was pivotal
08:53because at the event,
08:56the Fed meeting or the Fed event
08:59where Jay Powell,
09:02the chair of the Federal Reserve,
09:04gave a speech saying,
09:06okay, inflation is kind of high,
09:08but the labor market is weak.
09:11Yes, those two things are in conflict,
09:14but we think the evidence steers us
09:18in favor of cutting interest rates.
09:20And so that was actually kind of a bold statement
09:24because it said, we're going to cut.
09:27And in September, one month later,
09:30the Fed did indeed cut
09:32and it made three 25 basis point cuts last year.
09:35And so it makes sense that
09:39that event would raise questions
09:42in investors' minds about,
09:44hey, how safe is my money in fiat currency?
09:50Should I be looking for alternative ways
09:53to protect my retirement savings?
09:55And so that is why I think
09:57Jackson Hole was such a pivotal moment.
10:01The other big Fed event
10:03that got gold prices
10:05and other precious metals to rally
10:07was the last cut that the Fed made on December 10th.
10:11So Jackson Hole is just one
10:13of many Fed events
10:14that have caused people to say,
10:18hey, wait a minute,
10:19why are we easing when inflation is so high?
10:22This is steering us in a bad place.
10:25You say inflation is so high,
10:27it still has a two in front of it.
10:30It doesn't, it isn't 2.0,
10:32but it's come down a long way.
10:35And the 10-year yield,
10:37while it's a little higher,
10:38right now as we talk,
10:39is around 4.2, something like that.
10:41If there really is a concern
10:43about our repaying our debts
10:44in the United States,
10:45why aren't the yields higher?
10:47Why isn't inflation higher?
10:50So this is a great question.
10:52And, you know,
10:53let me say, first of all,
10:54the debasement trade is totally new, right?
10:56We're learning about this in real time,
10:59but there are two big pushbacks
11:01to the debasement trade.
11:02The first is that,
11:03hey, wait a minute,
11:04U.S. Treasury yields
11:05aren't particularly high.
11:06If anything,
11:07they've kind of traded in a range
11:09or even fallen somewhat.
11:10So what are you doing
11:12talking about a fiscal crisis?
11:13And second,
11:15if people are worried about
11:17inflation as an erosion
11:20of retirement savings,
11:22then why is break-even inflation
11:23still so low?
11:25You know, that's pretty low too,
11:26as you know.
11:28And so I think there's good explanations
11:29for both things.
11:30First of all,
11:31as I mentioned at the outset,
11:34there are a lot of places
11:35that are in much worse fiscal shape
11:38than the United States.
11:39So in a relative sense,
11:42the U.S. looks relatively okay
11:43and that makes Treasury yields
11:46relatively attractive.
11:48So as we look at
11:49the political situation today,
11:52there doesn't seem to be
11:53a lot of prospect
11:54of really getting
11:55our fiscal house in order
11:56and getting the debt down
11:58anytime soon.
11:59And as far as I can tell,
12:00that's true with both parties,
12:01Democrat or Republican.
12:02So does that indicate,
12:04as far as you can see,
12:06and we can't predict,
12:07but as far as you can see,
12:08gold will continue to be elevated
12:09and may even go higher?
12:11Yeah.
12:12I really worry that
12:14we're at the very beginning
12:16of this debasement phenomenon.
12:19I mean, at the end of the day,
12:21this thing has been going on
12:22in earnest less than a year.
12:25Market phenomena
12:26can play out over decades.
12:29And I mean,
12:31the point that you just made,
12:32Treasury yields are still low.
12:34Well, there's a lot of reason
12:36to think that they can go higher.
12:38And of course,
12:39we are in an environment
12:41where we have midterm elections
12:43later on this year.
12:45The current administration
12:46may do lots of things
12:48to stimulate activity.
12:50So we may actually get strong growth
12:52and we may get
12:53a pickup in inflation.
12:55All of these things,
12:56I think,
12:57would steer towards
12:59gold and other precious metals
13:01going higher.
13:03Gold prices also jumped
13:04on Liberation Day,
13:06April 2nd last year,
13:08when there was all this
13:09tariff uncertainty.
13:10So we need two things.
13:12We need governments
13:13to focus on
13:15getting their fiscal house
13:16in order.
13:17And we need governments
13:19to get along across countries.
13:22We need geopolitical stability.
13:24Do I think
13:24either of those things
13:26are likely?
13:26No.
13:27So I think
13:28things have to get worse
13:29before they get better,
13:30meaning gold goes higher.
13:32then we are neverâŚ
13:32We need them everâŚ
13:33We need them to
13:49believe in these points
13:49so we can't even
13:50say that they're
13:51% ahead!!
13:51Or it's not
13:52get worse!
13:52Basically,
13:53they areä¸ ĐżŃид
13:54those two things
13:54toant
13:55nochmal STEP to
13:55end with your
13:57work.
13:58If you want sort of
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