Precious metals miners
Based on their unique characteristics, we’ve categorized precious metals miners into the following five groups:
- senior gold miners
- intermediate gold miners
- South African gold miners
- royalty and streaming companies
- silver miners
While there are certain overlaps in categorization (some South African names could fit into the senior or intermediate space, and silver miners could be either senior or intermediate), the categories are broadly based on the unique factors driving them.
Leverage to gold prices
During times of high and rising gold prices, leveraged ETFs and equities usually outperform the underlying commodity. This works the other way around as well. Even among precious metals equities, different categories of precious metals miners respond differently to changes in underlying metals prices.
The above graph shows that Kinross Gold (KGC), Franco Nevada (FNV), Agnico Eagles Mines (AEM), and Royal Gold (RGLD) have outperformed other precious metals miners year-to-date until May 4, 2017.
Performances of miners
As the gold price performance remained muted overall, the royalty and streaming companies, which are usually more stable, outperformed other categories of miners. This stability causes them to have lower correlations and lower leverages compared to precious metals. For this reason, these companies underperformed other categories of miners in 2016.
While there were wide variations in the performance of different miners in the intermediate miners’ space, Agnico Eagle Mines (AEM) and Eldorado Gold (EGO) posted YTD gains of 8.5% and 5.9%, respectively.
South African miners gained 4.9% on average YTD. Sibanye Gold (SBGL) led the group with a YTD rise of 7.6% followed by AngloGold Ashanti (AU) and Gold Fields (GFI). Harmony Gold (HMY), on the other hand, has a negative price action of 2%.
Silver is a leveraged play on gold prices. When gold prices are rising, silver prices rise even more, giving silver miners an edge over gold miners. Silver miners lost 1% on average in 2017 YTD. Only Pan American Silver (PAAS) saw a positive price action of 6.5%, while the rest of the miners saw their stock prices fall over the period.
Senior gold miners have a strong correlation with gold prices (GLD). While Kinross Gold (KGC) outperformed its peers with a YTD gain of 15%, Newmont Mining (NEM) and Goldcorp (GG) have lost 4.6% and 2.1%, respectively.
In the next part, we’ll discuss the senior gold miners and their valuations in detail.