How Gold Prices Impact Diversified Miners



Diversified mining

The term “diversified miners” refers to mining companies that are not into streamlined gold or silver mining, but also mine base metals like copper, aluminium, or lead. Gold is widely seen to be a by-product of copper. Thus, the production of gold as well as base metals like copper may go hand in hand. Companies like Royal Gold (RGLD), GoldCorp (GG), Newmont Mining (NEM), and Aginico Eagle Mines (AEM) can be seen as diversified miners. The term “diversified” may also refer to the risks that these firms take on. Unlike pure gold miners, the price changes in the base metals also affect their profitability.

When comparing the price movements of diversified miners, it is evident that companies are impacted by gold prices to varying degrees.

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Correlation coefficient

The share price movement of RGLD, NEM, and AEM is correlated to gold by 0.77, 0.72, and 0.75, respectively. These numbers are comparatively lower than the correlations observed among the pure gold miners. However, GoldCorp (GG) has a correlation of 0.95. Though, Goldcorp mines copper, lead, zinc, and silver in addition to gold, the majority of revenue for GG still comes from gold, which explains the high correlation. The correlation coefficient suggests that 95% of the time, GG will rise if gold rises and vice versa. The strong positive correlation is an exception for this diversified metal miner.

Royal Gold and GoldCorp are trading 18% and 9.7% lower than their 100-day moving averages. The four diversified miners together contribute 22.3% to the price fluctuations of the VanEck Vectors Gold Miners ETF (GDX). The GDX indicator fell 22.9% in 2015 so far.


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