Golden Gambles


I was going to title this post “Time To Get MOYst” but I thought better of it for a few reasons, one being that I intend to talk about gold quite a lot and that title doesn’t tell you anything about shiny metal whatsoever. Also the subject of this analysis, ASX:MOY (or Millennium Minerals) isn’t exactly a household name so the MOY bit would have been quite silly. Anyway, lets talk about mining and other fun things.

The main reason that I’m bringing up gold again has already been covered in depth by one of our most popular article series “Global Financial Crisis 2016” or GFC MK II. However, we wrote those articles a while back and have had a heap of new readers since then so here’s a quick refresh on what we covered. The basic premise of the series is that the US has accidentally cooked the (global financial) goose by printing far too many US dollars (in a program known as Quantitative Easing) and this will likely lead to market chaos in the short to medium term as the US Federal Reserve Bank runs out of ways to keep the whole scam propped up. If this sounds like a crazy conspiracy theory to you I totally agree, but it’s probably worth pointing out that the reason it’s a conspiracy theory is because it could theoretically happen, and happen swiftly. Some other, lower quality financial websites such as Bloomberg have written recently about the possibility of global federal reserve banks already planning for the impending chaos. Gold is important if the world economy goes down the shitter for a few reasons, the main one being that it will hold value even in the case of hyperinflation (or drastic devaluation) of the Australian or US dollar.

So why is ASX:MOY an attractive proposition? For starters, ASX:MOY is one of many ways to own gold that don’t involve all the mucking around of buying and storing a physical metal (most likely under your mattress). I own units of the ETF ASX:QAU (BetaShares Gold Bullion) which derives its value from the price of the physical gold the fund holds in JP Morgan vaults in London. This seems to work out well for me, but when I purchased I was effectively paying exactly what the gold was worth (at the time) divided by the amount of ETF units on offer multiplied by the number I purchased. ASX:MOY is different because it allows you to purchase gold on the cheap. Say what? It works like this: you own ASX:MOY, ASX:MOY owns some gold in the ground. Bang, you (indirectly) own some gold. Hooray!

Miners like Millennium Minerals make their money by acquiring the right to explore and mine in specified regions. They raise money from their shareholders and buy these rights, with profit being the end goal (assuming they purchased the rights to a decent area that had enough gold to service all the costs involved in getting it out of the ground). ASX:MOY has hit a minor jackpot this week for a few reasons, which I’ll try to explain (however, I’m not a geologist so bear with me). The first is that their exploration and mining areas have ore that is far richer in gold than that required to achieve a viable return (as measured in grams of gold per tonne of ore). So basically, they get more gold per tonne of ore mined and processed, meaning that the gold costs far less per ounce than the price I effectively paid when I purchased my ETF units. Beer & Co estimate Millenniums production cost to be $1122/ounce, with the last trading price of gold in AUD at around $1640/ounce. Great margin if you ask me. However, probably worth noting that Beer & Co are sponsored by Millennium so it’s likely the real cost is slightly higher. On the plus side, Millennium looks likely to smash their production target (another consequence of having relatively more gold per tonne of ore mined).

ASX:MOY closed at $0.13 and has plenty of upside if the great results keep flowing, the price jumped 20% earlier in the week on news of the ore quality and is likely to climb further as production goals are exceeded. However, that’s pocket change compared to what would happen if the US economy collapses. James Rickards (prominent US economic naysayer) estimates that the price could spike to upwards of US $10, 000/ounce in the event of another global crisis. We’re not saying that it’s super likely to happen, but it sure is tempting to grab a stake in a company that can produce it for a lot less than that (just in case, of course).

At $0/ounce, Blue Lake Invest straight to your inbox is far cheaper than gold.