Shares in gold miner Silver Lake Resources Limited (ASX: SLR) have languished in the last 12 months. But as volatility across world share markets starts to grow, now could be the ideal time to consider adding exposure to gold to your portfolio.
Not all gold miners are created equal however, so here are three things every investor must know before buying Silver Lake Resources:
1. Cost and production
Silver Lake has been hammered by high production costs in 2014 and was one of the highest-cost ASX-listed gold producers for the most recent June quarter on an All-In Sustaining Cost (AISC) basis.
The company's All-In Sustaining Cost (AISC) per ounce for its Mount Monger Operations, which accounted for 83.5% of production, was $1,397 compared to Northern Star Resources Ltd (ASX: NST) at $1,032 per ounce.
High production costs are a warning sign for investors because they reduce free cash flow and thus any margin of safety the company might have.
2. A perfect storm for gold prices?
Currently sitting at around US$1,307 ($1,408) per ounce the coming six months could be a turning point for the price of gold as a 'safe haven'.
The precious metal historically has a positive correlation with global uncertainty and there has been a recent spike in potentially combustible events including civil war in Iraq, sanctions against Russia and the evolving threat of Ebola.
Combined with shaky share markets and the growing chorus of experienced investment voices singing a psalm of warning, gold's fortunes could be about to take a swing upwards.
3. Outlook
Guidance provided by Silver Lake for FY15 is for gold sales of between 125,000 and 135,000 ounces to be produced from the company's Mount Monger Operations. This will be down around 38% on full year FY14 production of 217,349 ounces.
Crucially, the focus on Mount Monger Operations should bring costs down from the high June quarter level and improve cash flows.