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What’s Helping Gold Prices Drive Gold Miners?

PART:
1 2 3 4 5 6 7 8 9
Part 4
What’s Helping Gold Prices Drive Gold Miners? PART 4 OF 9

How Gold Prices Are Influencing Senior Gold Miners

Senior gold miners

Gold miners (GDX) with large asset bases and established positions are usually referred to as senior gold miners. They are usually highly liquid stocks with diversified assets and thus are relatively less risky. While there are variations between different miners, as a group, they usually follow gold prices.

How Gold Prices Are Influencing Senior Gold Miners

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Leveraged exposure

The performance of these miners has diverged from the performance of gold prices YTD (year-to-date). Gold prices, as represented by the SPDR Gold Shares (GLD), have risen 16.3% YTD as of September 5, 2017.

Senior gold miners as a group, By comparison, have risen 13.4% YTD. While miners are usually a levered play on gold prices, this leverage has not worked so far in 2017, likely due to company-specific factors. Due to differences in operating and financial leverages among companies and other news, these performances vary.

Diverging performances

Among our four senior miners, Kinross Gold (KGC) has given the highest YTD return of 50.8%. Goldcorp (GG) has risen the least at 3.5%. Barrick Gold’s (ABX) and Newmont Mining’s (NEM) stock prices have gained 14.0% and 13.7%, respectively, YTD.

Kinross Gold has started to turn around. It has reduced its financial leverage considerably from a peak reached in 2011–2012. Its Tasiast Expansion growth project is also turning around well, which provides a positive outlook to the company’s production and cost outlook.

Meanwhile, Bald Mountain and Round Mountain could provide additional upsides for Kinross, as they’ve already helped the stock outperform peers in 2017.

Barrick Gold’s performance in 2017, especially in 2Q17, was marred by issues at its Veladero mine in Argentina. While Newmont’s operating performance has been overall strong, its higher cost guidance going forward has disappointed investors. Goldcorp has reported lackluster production growth, which hasn’t been encouraging for investors either.

For an in-depth discussion of these miners and drivers post 2Q17, check out Market Realist’s series A Comparative Analysis of Gold Miners’ 2Q17 Earnings.

We’ll take a look at our intermediate gold miners and their YTD performances in the next part of this series.

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