Mining companies respond to markets
Slumping commodity markets are prompting miners to respond to lower asset prices. Major North American miners including Barrick Gold (ABX) have already put a few mines up for sale. Dividends are being cancelled by mining companies including Goldcorp (GG) and Barrick Gold.
Australian miners in a fix
According to the Wall Street Journal, Australian mining companies such as Newcrest Mining (NCM) are concerned both about diminishing asset prices and rising debt burdens.
The tentative interest rate hike expected in September led the US dollar to rise. And because the balance sheet at many companies is US-dollar denominated, concerns about rising debt have also risen.
Having said that, the depreciating Australian dollar has a few possible benefits for Australian miners. These advantages include lower raw material costs for the product they sell in the United States. But these raw material gains can easily be wiped out by the rising debt that’s denominated in the stronger US dollar.
The US Dollar Index rose by 0.92% on Monday, August 10, settling at $1104.1 per ounce. At the same time, the Australian dollar fell by ~1.4%, finishing at ~$0.7312 US per Australian dollar.
In the chart given above, you can see why the US dollar is raising worries among US debtholders. Because the Australian dollar is comparatively weak, mining companies will need more Australian dollars to pay off their US dollar loans.
Precious metals and gold miner performance
Gold futures on the COMEX (commodity exchange—a division of the New York Mercantile Exchange) for August delivery rose by 0.92% on August 10. Similarly, silver for September delivery rose by 3.18%. Platinum for October delivery and palladium for September delivery also rose by 2.87% and 15.6%, respectively.
Mining companies New Gold (NGD), Yamana Gold (AUY), and Kinross Gold (KGC) rose 6.4%, 11.23%, and 10.75%, respectively. Combined, these companies make up 9.33% of the VanEck Vectors Gold Miners ETF (GDX). This ETF also rose thanks to the positive returns associated with most of its component companies.