For many gold miners listed on the ASX, the global market panic induced by the coronavirus pandemic has ignited demand for their shares.
Although the gold price has been volatile (and has been sparring with the USD for haven status), there is no doubt it is still marching upwards.
In the last three months gold has jumped more than 9% or US$142.
The past month alone has seen a close to 3% rise.
So why hasn’t the share price of Resolute Mining Ltd [ASX:RSG] increased with the price of gold?
Other similar-sized Aussie gold miners like Silver Lake Resources Ltd [ASX:SLR] and Perseus Mining Ltd [ASX:PRU] have managed to make impressive gains of close to 100%.
While RSG share price has lagged, shedding more than 29% over the past 12 months.
Source: Trading View
Not all that glitters is gold for Resolute Mining share price
On paper Resolute looks like a solid company.
It hasn’t changed its production guidance due to COVID-19 when a lot of others have.
It is in the process of selling its Queensland-based Ravenswood gold mine, meaning it won’t have to worry about FIFO bans.
Plus, RSG scored $100 million for it up front and up to $200 million in potential payments dependant on future gold prices and future gold production.
And the company has also managed to refinance a $300 million debt facility as the stock markets crashed, which is being used to pay off a complicated $250 million loan, which frees up $50 million.
RSG is also a low-cost producer, producing gold at around US$930 per ounce.
With a base of more than 13 million ounces of gold, RSG’s earning potential is nothing to be sneezed at.
So, what’s the problem?
With the recent sale of its only Australian mine, RSG is now fully exposed to Africa and all the geopolitical problems that come with that.
Africa is yet to feel the full force of the COVID-19 pandemic.
Health officials have warned the continent is least equipped to treat serious infections and could be headed for a healthcare catastrophe.
This could lead to widespread shutdowns of African mining operations and ultimately hit profits.
Mind the lag
It is worth noting that not all gold stocks are moving in line with the gold price, either with the US dollar gold price or Aussie dollar gold price.
Some are exceeding the physical gold price gains.
But others aren’t even coming close.
There is a lag between gold miners rallying and the stock price rallying.
They can catch up, but it may take a little while longer because mining is one of the riskiest plays in the market.
Many miners around the world were forced to shut shop for a few weeks, so that has hampered any gains they may have had.
But I would be wary of the knock-on effects of the recent market crash.
Market expert Shae Russell predicts these could be even bigger threats to the average investor’s wealth than the crash itself.
Discover why the market crash is far from over and the steps you should take now to protect yourself. Claim your free copy of ‘The 2020 Pandemic Market Crash Roadmap’ now.
For The Daily Reckoning Australia