Fresh bloodletting among gold mining stocks

Hedge funds bet record 340 tonnes the gold price will continue to fall as bears rip into majors – Barrick falls to 1989 level, Goldcorp at 11-year low

Renewed fears about Chinese equity markets after the worst points loss in Shanghai for eight years gave the gold price a lift on Monday.

But the metal continues to trade close to five-year lows after settling at $1,093, up only $7.40 from Friday’s close. An earlier move above the psychologically important $1,100 level turned out to be brief.

A return to its recent dip below $1,180 would represent a 50% retracement of the metals 12-year bull run.

The gold market has turned overwhelmingly bearish with so-called managed money investors such as hedge funds going short – placing bets that the gold price will decline – to the tune of 12.1m ounces or 340 tonnes, a new record high.

According to the Commodity Futures Trading Commission’s Commitment of Traders data for the week to July 21, large speculators now hold a net short position for the first time since at least 2006, when the data was first being tracked.

A positive gold price could not stop the bleeding among gold mining stocks with renewed selling pushing the sector to fresh-multiyear and sometimes multi-decade lows.

The sell-off was led by Barrick Gold Corp (NYSE:ABX, TSE:ABX), the world’s top producer of the metal, which tumbled 5.1% to the lowest in USD terms since November 1990. More than 33m shares changed hands, double the usual daily volume for the share.

Barrick’s market value has nearly halved just over the last three months and is now worth $8.5 billion in New York. That compares to a $64 billion capitalization when gold was at $1,900 in 2011. Barrick’s gold production is expected to fall to between 6.2m – 6.5m ounces as it disposes of underperforming assets to tackle its crippling debt-load of more than $13 billion.

Heavy selling also hit the world’s most valuable gold stock, Goldcorp (TSE:G, NYSE:GG) which fell 4.9% with more than 16m shares traded. Goldcorp is now worth $11 billion in New York and C$13.6 billion in Toronto – an 11-year low. Year to date share price decline for the Vancouver-based firm is 32% in US dollar terms thanks but its performance in Toronto is better as investors seek a hedge against a falling loonie.

Goldcorp is forecasting a whopping 20% production increase this year to between 3.3m – 3.6m ounces despite cutting capex costs nearly in half to $1.3 billion. Goldcorp latest project to come on stream is the Argentina-based Cerro Negro gold and silver mine while its also ramping up at Éléonore in Quebec.

World number two in terms of production Newmont Mining Corp (NYSE:NEM) was spared some of the worst trading, declining 3.3%.

Denver-based Newmont announced on Monday it is selling a refinery in Switzerland for $119 million bringing non-core asset sales to $1.6 billion over two years. The only gold company that forms part of the S&P500 index and which has been publicly traded since 1940, Newmont is having a good 2015 so far, with a relatively modest 9% decline.

While others are disposing of mines, Newmont is building its portfolio and recently acquired the Cripple Creek & Victor gold mine in Colorado for $820 million in cash from AngloGold Ashanti.  while selling non-core assets like a refinery in Switzerland. Unlike its peers the company is showing strong cash-flows and in its recent production report upped its output guidance to between 4.7 million ounces and 5.1 million ounces in 2015.

ADRs of AngloGold Ashanti (NYSE:AU), the world’s third largest gold producer expected to produce some 4m ounces in 2015, fell 6.2% for a market value of $2.5 billion on the NYSE. The counter has lost 30% of its value in just one month over fears of labour turmoil at its core operations in South Africa.

Agnico Eagle Mines (TSE:AEM, NYSE:AEM) also sold off, losing 3.9% on the day and cutting its market capitalization down to $6.5 billion in Toronto and $5.2 billion in New York bringing losses. Agnico is down 21% in a month but remains the only major gold producer in positive territory for the year – up 3% year to date in CAD terms although the USD has now also caught up with the Toronto-based company.

Agnico operates nine mines located in Canada, Finland and Mexico and hit record production during its first quarter. Agnico’s Meadowbank mine in Canada and 50%-owned Canadian Malartic mine are ramping up production helping it to raise 2015 output guidance to 1.6 million ounces.

Randgold Resources ADR’s trading on the Nasdaq (LON:RSS, NASDAQ:GOLD) also came under pressure with the fast growing miner losing 4.7%. The Africa-focused miner with a $5.4 billion valuation has declined 34% since hitting four-year highs in July last year.

Randgold has been piling on the ounces at its mines in West and Central Africa, growing output 26% last year with a target of 1.2m ounces this year. Its Kibali mine in the Democratic Republic of Congo which boasts reserves of 12 million ounces should hit 600,000 ounces this year while its Tongon mine in Côte d’Ivoire is also being upgraded.

Randgold, which have been active in West Africa for almost 20 years, is one of the fastest growing gold miners in the world, moving it up the ranks over the past couple of years to become the fifth most valuable gold counter.

Yamana Gold (TSE:YRI) dropped 4.9%, and the once high-flying Toronto-based company is now down a more than 30% in value in just one months after reporting disappointing full year 2014 results.

The company has had operational issues at its Argentina and Brazilian mines but still plans to up output this year to 1.3 million ounces. Yamana is worth $2.4 billion on the TSX, down a whopping 71% from highs hit in August last year.

Damage to Toronto’s Kinross Gold (TSE:K) was limited to less than 1%. The company with a market worth of  $2.5 billion produced 2.6 million ounces last year with some 720,000 ounces coming from Russia, making Kinross much cheaper than its peers on an ounce for ounce basis. Kinross recently settled a number of class-action lawsuits tied to its disastrous purchase in 2010 of Red Bank Mining for more than $7 billion.

Canada’s Eldorado Gold Corp (TSE:ELD) fell 3.2% bringing its year to date losses to over 40%. A promising start to 2015 for the stock came to an abrupt end on January 21 when the Vancouver-based gold producer’s outlook for the year came in way below expectations.

The company with mines and projects in crisis-hit Greece, now worth $3 billion on the Toronto big board, announced record production of 782,224 ounces during 2014, but slashed forecast production for this year to between 640,000 and 700,000 ounces and upped costs at the same time.

Image by Javier Cabrio.