[Cu Price] Mining Stocks Bruised Even More Than Gold Prices

By  Paul Ploumis 27 Jul 2015  Last updated at  05:52:37 GMT

(Kitco News) - Think gold had a rough week. Mining stocks had it even worse.

Gold prices hit a five-year low. As of Thursday’s close, the Comex August gold futures had fallen $37.80 to $1,094.10 an ounce. That was a decline of 3.3% since last Friday.

However, there’s an old axiom that mining stocks tend to both rise and fall faster than gold itself due to their leverage to the metal, and that certainly was the case this week. During that same time span, the NYSE Arca Gold Bugs index (HUI) lost a far larger percentage – 13.8% -- to 110.8116. The Market Vectors Gold Miners exchange-traded fund (GDX), which consists of stocks of gold-mining companies, fell $1.80 to $13.62, which was a decline of 11.7%.

Shares of major companies such as Barrick Gold Corp. (NYSE: ABX; TSX: ABX), Newmont Mining Corp. (NYSE: NEM) and Goldcorp Inc. (TSX: G; NYSE: GG) all tumbled, along with most smaller companies.

A decline in the price of gold is negative for mining companies collectively since this means less revenue for the same amount of metal. But considering gold already has been sliding for nearly four years now, news reports during the week cited still other analyst/investor worries about producers, such as how much longer before the cost of producing an ounce exceeds the price of gold itself and the ability of companies to service debt under such a scenario.

Companies have presumably already made the so-called easy cost cuts in the last few years. Falling share prices also make it harder for miners to raise cash on stock markets, plus they reduce the value of assets producers might want to divest, according to various news reports.

Of the major companies, Newmont Mining had perhaps the biggest news event of the week since the company was the first senior North American producer to report second-quarter earnings. Adjusted net income was $131 million, or 26 cents per share, compared to $101 million, or 20 cents, in the second quarter of 2014. Officials also increased their guidance for gold production and lowered the cost outlook for 2015.

The company even got some favorable comments from analysts. Still, in a declining gold-price environment, Newmont shares fell anyway – even on Thursday when the earnings report came out. As of Thursday’s close, Newmont (NYSE: NEM) was down $3.09, or 15% since the end of last week.

Goldcorp, Kinross Gold Corp. (TSX: K; NYSE: KGC), Agnico Eagle Mines Ltd. (NYSE: AEM; TSX: AEM) and Yamana Gold Inc. (TSX: YRI; NYSE: AUY) are all scheduled to report second-quarter results next week. No. 1 producer Barrick has said it will release its earnings on Aug. 5.

Among the larger companies, Iamgold (NYSE: IAG) gave up 33 cents, or 21%, through Thursday of this week, while Barrick (NYSE: ABX) gave up $1.72, or 19.6%, in New York trading. Once again, the losses appeared to be largely the result of gold’s continued decline, although some analyst comments didn’t help. Otherwise, news from the companies themselves would not explain the stock declines. Iamgold reported drill results from the Boto Gold Project in West Africa. Barrick completed the previously announced sale of the Cowal mine in Australia for $550 million, with the company saying the proceeds would go toward paying down debt, and announced the resignation of a board member.

Weaker gold prices also seemed to play a big role in the declines of shares for many of the smaller companies, since there appeared to be a dearth of market-moving news, although once again, an analyst comment here and there didn’t help. Seabridge Gold (NYSE: SA) lost $1.53, or 30%. Alamos Gold Inc. (NYSES: AGI) fell $1.03, or 25.1%. Sandstorm Gold Ltd. (NYSE: SAND), a gold streaming and royalty company, slid 66 cents, or 22.2%. Endeavour Silver Corp. (NYSE: EXK) fell 29 cents, or 18%.

Only a handful of North American gold and silver companies managed a gain this week in a negative price environment for gold. One was Pacific Booker Minerals Inc. (TSXV: BKM) up 49 cents, or 30.4%. Its shares bounced back after they were already pummeled earlier in July. Earlier this month, the company announced that government authorities decided that the Morrison copper/gold project in British Columbia has to undergo a further environmental assessment. Then last week, Pacific Booker Minerals said the company has consulted with professional advisors and is waiting for their suggestions on the best method to address the issues raised by the government.

NovaGold Resources Inc. (TSX: NG) added 15 cents, or 4.1%. The company reported earlier this month that the U.S. Army Corps of Engineers is working toward publication of a draft environmental impact statement for the flagship 50%-owned Donlin gold project in Alaska around year-end, and the company continues to anticipate issuance of the final Donlin EIS in early 2017. NovaGold describes Donlin as “one of the largest and highest-grade undeveloped open-pit gold deposits in the world.” The company says it has sufficient cash and term deposits to take Donlin through permitting.

Courtesy: Kitco News