The $30bn SPDR Gold Trust (NYSE: GLD.US) ETF closed almost unchanged on Friday at $118.99, leaving it up by 2.5% so far this year. In the UK, London-listed Gold Bullion Securities (LSE: GBS) rose by 0.75% to $119.05 in early trading, leaving it up by 2.9% on the year to date.

Miners report production gains

Shares in Mwana Africa (LSE: MWA) climbed 11% to 2.2p in early trading, after the African gold and nickel miner reported that gold production from its Freda Rebecca mine  in Zimbabwe had risen by 23% to 16,555 ounces during the second quarter, while all-in sustaining costs fell  by 17% to $1,061 per ounce.

This suggests Mwana can remain profitable even if the price of gold remains weak. Mwana’s CEO, Kalaa Mpinga, says that recent modifications to the mine “appear to be bearing fruit” and should result in “a more consistent operating performance in the coming quarters“.

Shanta Gold Limited (LSE: SHG) climbed 8% to 9.5p when markets opened this morning, after the Tanzania-focused gold miner reported a 4% increase in gold production to 22,720 ounces, while all-in sustaining costs fell by 9% to just $873.

Shanta’s low mining costs mean that its mining operations have remained robustly profitable in the face of lower gold prices, and the firm reported second quarter cash flow from operations of $14.8m, double the $7.0m reported for the same period last year.

Trans-Siberian Gold (LSE: TSG) rose by 12% to 10.9p this morning after the small Russia-focused miner reported that the average gold grade processed during the third quarter of 2014 was 8.28g/t, the highest achieved at any time during the last three years and a 20% improvement on the 6.87g/t the firm reported during the first half of 2014.

Trans-Siberian reported third-quarter production of 7,784 ounces of gold and 9,121 ounces of silver, but while production has been rising at the firm, it has struggled with costs: Trans-Siberian’s total cost of sales per ounce of gold was $1,269 during the first half of this year, compared to an average sale price of $1,292 per ounce of gold, which is above the current market price for gold.

The price of gold for immediately delivery was up 1.3% at $1,238 per ounce on Friday morning.

As a result, physical gold ETFs have also made gains, and according to a Bloomberg report, nearly $1bn has been added to the value exchange-traded funds backed by gold over the last month.

The $30bn SPDR Gold Trust (NYSE: GLD.US) ETF has risen by 1.5% to $119.22 since last Friday, taking it back into positive territory for the year with a gain of 2.7% so far in 2014. Over the same period, London-listed Gold Bullion Securities (LSE: GBS) has climbed 3.7% to $119.00, leaving it up by 2.9% on the year to date.

Gold miners

Shares in Condor Gold (LSE: CNR) gained 10% to 79p on Friday morning, making the firm one of the day’s strongest performers in the gold mining sector. The firm recently released an update on its planned pre-feasibility study, which was due by the end of September 2014 is now expected by 31 October, as the scope of the report has been expanded to include two additional, larger-scale mining scenarios for the company’s La India project in Nicaragua.

Other big gainers over the last week include Petropavlovsk (LSE: POG), which has climbed 14% to 23p from a low of 19p over the last five days, despite the grim outlook for shareholders, thanks to Wednesday’s sharp rise in the price of gold. The firm’s third-quarter update is due next week, on 22 October.

At the other end of the table, former 2014 favourite SolGold (LSE: SOLG) has sunk: the firm’s shares were up 65% by the end of February this year, but have since given up those gains and more, falling by 18% this week and by 49% so far in 2014, as investors appear to have lost interest in the firm’s highly prospective Cascabel project in Ecuador.

These numbers make it clear that the gold sector remains seriously out of favour with the market, thanks the poor financial performance of many miners, and to ongoing weakness in the price of gold. 

Gold’s gains have been helped by comments from the US Federal Reserve suggesting that concerns are rising over the possibility of a renewed economic slowdown. This has helped to reverse some of the dollar’s recent gains and boost demand for gold, as it makes near-term interest rate rises much less likely.

As a result, physical gold ETFs have performed strongly this week. The $30bn SPDR Gold Trust (NYSE: GLD.US) ETF has risen by 2.5% to $117.49 since last Friday, taking it back into positive territory for the year, with a gain of 1.2% so far in 2014. Over the same period, London-listed Gold Bullion Securities (LSE: GBS) has climbed 2.6% to $117.63, leaving it up by 1.7% on the year to date.

Gold mining update

Egyptian gold miner Centamin (LSE: CEY) climbed 3.2% to 60p in early trade this morning, after the firm reported that gold production rose by 15% to 93,624 ounces during the quarter ended 30 September, compared to the same period last year.

Encouragingly, Centamin maintained its full-year forecast for production of 420,000 ounces of gold, and said that average grades rose during the third quarter and are expected to improve further during the fourth quarter, boosting production levels. As today’s release was a production update only, there was no mention of production costs or profit, but Centamin has previously forecast an average cash operating cost of $700 per ounce for this year, which should mean the firm cash flow positive at current gold prices.

Randgold Resources Limited (LSE: RRS) (NASDAQ: GOLD.US) rose by 6.9% to 4,324p during the first hour of trading this morning, as investors reacted to receding expectations for US interest rate rises and the renewed strength of gold. The FTSE 100 gold miner is expected to release its third-quarter update on 6 November, but confirmed last month that the majority of its operations are running as normal, despite the impact of the Ebola epidemic in West Africa.

However, gold bullion dealers expect a surge in demand over the next week, when the market’s two biggest buyers of bullion — China and India — return from public holidays and enter traditional buying periods.

In the meantime, physical gold ETFs have drifted lower. The $33bn SPDR Gold Trust (NYSE: GLD.US) ETF has fallen by 0.6% to $116.74 since last Friday, cutting its gains for the year to date to just 0.5%. Over the same period, London-listed Gold Bullion Securities (LSE: GBS) has slipped 0.8% to $115.79, erasing its gains for the year and leaving the ETF’s shares trading at 2013’s closing price.

Gold mining update

Chaarat Gold Holdings (LSE: CGH) slipped after Dekel Golan, the firm’s chief executive and largest private shareholder, reported the sale of 545,064 shares in the company, reducing his stake to 5.62% of the firm’s share capital. Mr Golan said that the sale, which was worth around £87,210, was necessary ‘for personal reasons’. Chaarat’s share price fell 1.3% to 15.3p on the news, but remains up by 56% so far this year.

Following news of its planned rights issue, Petropavlovsk (LSE: POG) has continued to fall heavily. The debt-laden miner’s shares are currently trading at around 24p, down by 11% over the last week. On Thursday, major shareholder Norges Bank confirmed it had trimmed its holding below 4%, and it is possible that other major shareholders — with non-disclosable shareholdings of below 3% — may also have been selling the stock, driving the share price down due to a lack of buyers.

Russian gold miner Highland Gold Mining (LSE: HGM), whose solid interim results I commented on last week, has also suffered this week, shedding 9.5% of its value. However, the difference here is that approximately 4.6% — or 2.5p — of this decline was due to the miner’s shares going ex-dividend. The decline has left the miner’s shares trading on a forecast P/E of just 4, highlighting a potential — albeit risky — value opportunity.

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.

As a result, physical gold ETFs have also drifted lower.

The $33bn SPDR Gold Trust (NYSE: GLD.US) ETF has fallen by 2.8% to $118.64 since last Tuesday, cutting its gains for the year to date to just 2.2%. Over the same period, London-listed Gold Bullion Securities (LSE: GBS) has slipped 2.5% to $118.48, leaving the fund’s shares just 2.4% higher than they were at the start of 2014.

Petropavlovsk debt update

Russia-based gold miner Petropavlovsk (LSE: POG) fell 16% to 33p when markets opened this morning. The reason was the firm’s long-awaited update on its refinancing plans — and the news is not good for shareholders.

As I warned at the end of August, the pressing burden of the Petropavlovsk’s $924m net debt means that the firm’s banks are in the driving seat. Petropavlovsk is planning to swap the $300m of convertible bonds due for repayment in February 2015 for new convertible bonds due in 2019.

The severity of the situation is clear; while the outgoing bonds were issued with a coupon (interest rate) of 4%, the new ones will have a coupon of 7.5%, such is the increased risk that bondholders won’t get their money back.

Shareholders may be wiped out

To persuade bondholders to accept this deal, it will include a cash element, which will be raised with a rights issue.

This gives existing shareholders two equally unappealing choices: put more money into a business that’s struggling to survive, or face significant dilution. To underline the severity of the situation for shareholders, one of Petropavlovsk’s main banks has ruled that the firm cannot use any of its existing cash reserves to fund the planned bondholder payment — the money must come from a rights issue (i.e. from shareholders).

What’s happening is simple: shareholders are being milked, diluted, and potentially wiped out, in order to help Petropavlovsk regain control of its debt mountain. This is a completely normal process, as the rights of debt holders always take priority over shareholders’ rights — hence the huge risks involved in buying shares in companies with debt problems.

As a result, physical gold ETFs have drifted lower over the last week. The $33bn SPDR Gold Trust (NYSE: GLD.US) ETF has fallen by 2.4% to $120.86 since last Wednesday, cutting its gains for the year to date to just 4.1%.

Over the same period, London-listed Gold Bullion Securities (LSE: GBS) has slipped 2.7% to $120.20, leaving the fund’s shares just 3.9% higher than they were at the start of 2014.

Gold mining update

One of the world’s largest gold miners, South Africa-based AngloGold Ashanti (LSE: AGD), announced this morning that it would split its mining business into two, by transferring its mining assets outside South Africa into a new, London-listed holding company.

At the same time, the firm, which has struggled to make a profit in recent years and has net debt of more than $3bn, said that it would seek to raise $2.1bn in a rights issue, aimed at leaving the firm debt-free after the restructuring was completed, with certain limited exceptions.

Given that AngloGold’s market capitalisation is only $6.3bn, a rights issue of this size represents considerable dilution, and the firm’s shares were down by more than 11% in London trade today.

Elsewhere, small cap explorer SolGold (LSE: SOLG) rose by 7.5% to 6.5p this morning, after announcing a strong set of drilling results from its Cascabel project in Ecuador.

The firm said that hole 8 of its drilling programme had found visible mineralisation from 378.2m down to its current depth of 606.5m, while preliminary modelling from its IP survey supported its geological model and would be followed by the mobilisation of a second drill rig by mid-October.

Finally, Condor Gold (LSE: CNR) fell by more than 5% to 94p today. The company, which is working on producing a pre-feasibility study (PFS) for its 2.37 million gold equivalent ounce La India gold project in Nicaragua, published its interim results today.

However, today’s report contained little new information, ahead of the expected completion of the PFS at the end of September 2014, and investors may also be discouraged by the ongoing mining ban in El Salvador, where Condor owns 90% of a 1.1 million gold equivalent ounce resource.

Strong US economic data — especially manufacturing — and the growing strength of the US dollar are the main reasons for gold’s weakness, but there are also fears that the surge in physical gold demand from Chinese banks may fall, as the banks’ use of gold leasing to circumvent restrictions on new loans could come under closer scrutiny.

Chinese banks’ gold holdings have risen by 55% to 1,445 tonnes over the last year, according to a recent Bloomberg article — that’s more than the official gold reserves of Russia, Switzerland or China itself, according to the organisation.

As a result, physical gold ETFs fell sharply on Tuesday, with the $33bn SPDR Gold Trust (NYSE: GLD.US) ETF trading down by 1.8% at $121.62 shortly after US markets opened, cutting its gains for the year to date to just 4.7%.

Similarly, the London-listed, Gold Bullion Securities (LSE: GBS) was down by 1.9% at $121.15 on Tuesday afternoon, leaving it just 4.8% higher than at the start of 2014.

Gold mining update

In the mining sector, shares in debt-laden Russian gold miner Petropavlovsk (LSE: POG) put on a spurt to break the 40p barrier for the first time in almost two months, after broker Canaccord Genuity gave the firm a ‘speculative buy’ rating, with a target price of 85p. However, investing in Petropavlovsk continues to carry significant risk, as I explained recently.

There was better news for shareholders of Chaarat Gold Holdings Ltd (LSE: CGH), the Kyrgyz Republic-focused gold developer whose share price has risen by 44% over the last five days. This gain appears to have been triggered by the announcement that two substantial institutional shareholders have purchased shares in the firm, accounting for a total of 26% of the firm.

Earlier this year, Chaarat published an updated Definitive Feasibility Study showing that projected production from its Chaarat Project could be at least 250,000 ounces per year, from a JORC-compliant measured and indicated resource of 3.59 million ounces.

Physical gold ETFs have also edged higher this week: the $34bn SPDR Gold Trust (NYSE: GLD.US) ETF has gained around 0.3% to $123.35 so far this week, leaving it up by 6.2% so far this year.

In London, Gold Bullion Securities (LSE: GBS) has edged up by 0.4% to $123.35, leaving it 6.6% higher than at the start of 2014.

Mining market update

In the gold mining market, several companies have released news updates that have triggered significant market moves.

Kirkland Lake Gold Inc (LSE: KGI) has gained 13% to 301p so far this week, after reporting that its latest exploration drilling results have “confirmed additional high grade mineralization” in the firm’s core South Mine Complex. According to Kirkland, drilling highlights included a new footwall zone assayed at 442.3 grammes per tonne over 1.0 feet, and a separate footwall zone assayed at 594.5 g/tonne over 1.7 feet.

The firm also expects to be able to upgrade the resource category for the HM claim based on two new intersections less than 360 feet below ground level.

Kirkland’s share price has bounced back strongly this year, following the firm’s restructuring, and the Ontario, Canada-based company is the top performer in the mining sector over the last month, with a price gain of 42%.

Polymetal International (LSE: POLY) is another riser, gaining more than 3% to 540p on Wednesday, after reporting a 1% rise in first-half revenues, thanks to 12% sales growth outweighing the 10% fall in gold prices compared to the same period last year.

Polymetal’s rising production has also helped cut costs: the firm’s all-in cash costs fell by 22% to $938 per gold equivalent ounce, compared to the first half of last year, driving a return to profit for the Russian firm. Net earnings of $100m for the first six months of 2014 enabled the firm to declare an interim dividend of 8 cents per share, which should be doubled by the forecast final dividend, later this year.

Gold’s weakness has seen the share prices of physical gold ETFs move lower this week: the $34bn SPDR Gold Trust (NYSE: GLD.US) ETF has fallen by 1% to $124.22, leaving it up by 7.0% so far this year, while London-listed Gold Bullion Securities (LSE: GBS) has fallen 1.8% to $122.77, leaving it up by 6.1% so far in 2014.

Rising supply

The balance between supply and demand in the physical gold market also shifted in favour of buyers, during the second quarter. According to the latest figures from the World Gold Council, the supply of new gold to the market rose by 10% to 1,078 tonnes, compared to the same period last year, while demand fell by 15% to just 972 tonnes, down from 1,148t during the Q2 2013.

The big changes were in the jewellery market and the investment gold market. In jewellery, demand fell from 727t during the second quarter of 2013, to just 518t during the same period this year — the lowest level since Q4 2012. Similarly, demand for gold bars and coins was down heavily, dropping to 275t — down from 286t in Q1, and from 628t during the second quarter of 2013!

ETF outflows also continued, with a further 40t flowing out of physical gold ETFs during the second quarter, taking the total outflows for the last four quarters to 344t, which is equivalent to 8% of total 2013 gold supply.

Mining update

Gold mining shares have been relatively quiet this week, with no major news.

Debt-bound Russian gold miner Petropavlovsk fallen back to 34p, after last week’s sharp rally, but African firm Amara Mining (LSE: AMA) has held onto the gains it made last week, after reporting strong drilling results from the Yaoure Gold Project, which included an intercept of 17m at 7.35 grammes/tonne.

Amara’s share price has risen by 59% so far this year, making it one of the strongest performers in the sector.