a Covid vaccine won’t cure monetary incontinence, so this gold miner is a hold

Gold - MICHAEL DALDER/REUTERS
Gold – MICHAEL DALDER/REUTERS

Gold is slipping back towards $1,700 (£1,366) an ounce after its latest failure to crack the $1,750 mark, and the combination of easing of global lockdowns and excitement over the development of a possible vaccine for Covid-19 means markets seem to be leaning back to stocks and away from the precious metal.

This is quite understandable and, since Centamin’s shares have risen by 45pc since our last analysis of its prospects in March, it would be no surprise to see some profit-takers emerge, especially if news on a vaccine for the virus proves positive.

Yet it should be worth keeping some exposure to precious metals, and the miners that produce them, for two reasons.

First, they are a useful hedge in case of any further setbacks in the effort to combat the virus. Second, governments and central banks alike are going to find it very hard to rein in the fiscal and monetary stimulus they are throwing at the economic downturn, even if they are eventually inclined to do so (which history suggests they may not be).

A quick tally suggests that the stimulus total is well over $20 trillion (£16 trillion), or more than a fifth of global economic output.

Central bankers and politicians did not get round to “sterilising” the stimulus used to combat the great financial crisis. Anyone who anticipates a repeat performance and views this as the ongoing debasement of what we call “money” may feel this is an environment that requires some exposure to a perceived long-term store of value.

Remember that gold has risen by 34pc in dollar terms over the past 12 months and by more than 500pc over the past 20 years of ultra-loose monetary policy. Wonderful as a vaccine for Covid-19 would be, this column is not sure it would act as a cure for monetary (or fiscal) incontinence.

In this context, it is interesting to note that China continues to hoover up gold mining assets. Zijin Mining acquired Canada’s Continental Gold for C$1.4bn in cash in March, and Shandong Gold agreed to acquire a junior Canadian gold digger, TMAC Resources, for $149m last month.

Long-term investors might take the hint, especially as Centamin offers net cash on its balance sheet as a further buffer, according to the annual report released just last week.

Management’s forecast of an “all-in sustained cost” (AISC) of production somewhere between $870 and $920 an ounce this year means that further cash could accrue even if gold just holds its own at current levels.

First-quarter production of 125,000 ounces of gold at an AISC of $902 is a good start to meeting the FTSE 250 company’s full-year targets, which admittedly makes a nice change for a firm that has a record of operational problems at its Sukari mine in Egypt.

That cash flow could turn into dividends too. Centamin passed its final dividend in 2019 but has already paid out the same $0.06-a-share sum as a first interim distribution for 2020, and there could be more to come, to give income-seekers a little solace for good measure.

Any pullback in the shares could be a chance to top up on Centamin. Hold; buy on weakness.

Questor says: hold

Ticker: CEY

Share price at close: 167.75p

Update: TI Fluid Systems

On the face of it, TI Fluid Systems is not ideally suited to the current environment as an indebted supplier to the automotive industry. Yet the shares have still gained some 10pc since our initial analysis a year ago and we can add 7.9p a share in dividends to the pot, including the 5.2p final paid just last week.

A 16pc drop in first-quarter sales beats a 23pc plunge in global car output, and car plants across the world are slowly starting to reopen.

The company, whose market value is £1bn, also still has the potential to be a long-term winner as the world moves away from the internal combustion engine, since electric vehicles require additional fluid to manage heat.

It can already point to significant design wins relating to thermal efficiency management systems for electric cars.

The company may be slowly coming through the worst, so hold on.

Questor says: hold

Ticker: TIFS

Share price at close: 195p

Russ Mould is investment director at AJ Bell, the stockbroker.

Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 6am

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