Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The gold price slid more than $25 or over 2% an ounce on Tuesday to a day low of $1,263 an ounce, levels last seen early February.
Gold’s negative momentum saw gold stocks selling off heavily on the day with the Market Vectors Gold Miners ETF (NYSEARCA:GDX), holding stock in the world’s top gold miners, coming close to wiping out gains for the year, while the Philadelphia Gold & Silver Index (INDEXNASDAQ:XAU) fell 3.6% to levels last in January.
While the yellow metal is still up some 5% in value this year, the shares of some major gold miners are back in negative territory for 2014.
By the close on Monday, Barrick Gold Corp (NYSE:ABX, TSE:ABX) had lost 4% or $500 million in market value with 2 million shares changing hands, making the world’s number one producer of the metal one of the worst performers in the sector on the day.
The Toronto-based miner is the subject of a number of class-action lawsuits over its costly Pascua Lama project on the border between Chile and Argentina.
The class actions allege that Barrick Gold shareholders lost billions of dollars as a result of Barrick’s “misrepresentations and failures” regarding the stalled project.
The technically and politically challenging project high in the Andes launched in 2006 (initial capex costs were pegged at $1.5 billion but has now ballooned to $8.5 billion) suffered a number of defeats in Chilean courts about water use and the impact on glaciers in the area.
Barrick which will produce roughly 7 million ounces of gold in 2014 is now worth $20.1 billion on the TSX, down 7.5% so far this year. Barrick shares struck 21-year lows In July last year after peaking at a $54 billion market value in 2011.
Newmont Mining Corp (NYSE:NEM) with a market value of $11.4 billion did not escape the carnage trading down 3% in regular hours. Talks in April between Newmont and Barrick about a possible merger ended acrimoniously with both sides going public with unflattering comments about incompatible corporate cultures.
The world’s third largest gold producer behind Newmont, AngloGold Ashanti (NYSE:AU) dropped 6% in Tuesday trade, but the company’s ADRs listed in New York is indicative of a turnaround story.
First-quarter production for Johannesburg-based Anglogold of 1 million oz at a total cash cost of $770/oz, was the strongest first quarter performance in four years and has helped the counter gain 34.7% this year.
Goldcorp (TSE:G) declined a shade under 4% on Tuesday. The Vancouver-based company has regained the title as the world’s most valuable gold stock with an 11% gain in market capitalization to $20.8 billion this year.
Goldcorp is expected to produce around 3 million ounces of gold this year and was praised by investors for walking away from a hostile takeover of fellow Canadian gold miner Osisko (TSE:OSK).
Osisko found white knights in the form of Yamana Gold (TSE:YRI) and Agnico Eagle Mines (TSE:AEM) which will now jointly own 100% of the Montreal firm and take over operation of the company’s only operating mine, the Canadian Malartic in Quebec.
Yamana which is forecast to produce 1.4 million ounces this year, slid 3.2% on Tuesday, while Agnico Eagle Mines (TSX:AEM) losses were steep at 5.8%.
The bidding for Osisko boosted the stock 66% this year for a market value of $3.5 billion while Toronto-based Yamana is worth $5.9 billion and Agnico $5.3 billion making the acquirers the globe’s seventh and eighth most valuable listed gold miners. Yamana shares are down 14% year to date, while Agnico has stayed on the positive side.
Toronto’s Kinross Gold (TSX:K) lost 3.5% on the day and is back in the red for 2014 over worries about the impact on the company’s operating mines in Russia amid the tensions over Ukraine. Kinross is worth a good $1.2 billion less than Yamana, despite being forecast to produce some 1.3 million ounces more than Yamana this year.
Canada’s Eldorado Gold Corp (TSX:ELD) declined 3.6% and Iamgold (TSE:IMG) dropped 3.7%.
South African miner Gold Fields (NYSE:GFI) was worse hit ending down 6.9% in New York, but the Johannesburg-based firm which is expected to mine 2 million ounces this year is still showing gains of 13.7% in 2014.
Randgold Resources ADR’s trading on the Nasdaq (LON:RSS,NASDAQ:GOLD) contained losses at 1.6% and is up strongly this year as its massive new Kibali mine in the Democratic Republic of Congo (DRC) exceeds expectations.
Africa-focused Randgold has become something of an investors’ favourite with the company valued at some $7 billion in London, as it rapidly ramps up production in 2014 to around 1.2 million ounces.
