Why Intermediate Gold Miners Have Underperformed Gold



Intermediate gold miners

Compared with senior gold miners, intermediate gold miners are smaller in terms of production and market capitalization. However, they are all generally liquid, unlike their junior counterparts (GDXJ). Intermediate miners’ geographical diversification is usually lower than that of senior gold miners.

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Underperforming gold

As a group, these miners have underperformed gold and the VanEck Vectors Gold Miners ETF (GDX) YTD (year-to-date). As of February 12, 2018, the average performance in this group was -8.5%, whereas the SPDR Gold Shares ETF (GLD) had gained 1.4%. However, the five intermediate miners’ performance has diverged significantly.

Performing at extremes

Yamana Gold (AUY) has outperformed peers, GDX, and GLD YTD, returning 4.8%. This is the only stock giving positive returns in the intermediate group. Eldorado Gold (EGO) and New Gold (NGD), on the other hand, have fallen 18.9% and 18.8%, respectively. IAMGOLD (IAG) and Agnico Eagle Mines (AEM) have seen smaller losses, of 5.0% and 4.6%, respectively.

The major catalyst for Yamana’s price reversal, which started in 4Q17, was the beginning of its large silver mine, Cerro Moro, in 2018. This mine, once up to full capacity in 2019, should help the miner triple its silver production and increase its gold production by 20% YoY (year-over-year). Cerro Moro could also produce silver and gold for Yamana at a cost lower than the company’s current average cost. The company released its preliminary production results for 4Q17 and 2017 on January 11, 2018. Its fiscal production came in higher than the guidance it set for the year in October 2017.

New Gold stock was punished severely in 2017 for its capital expenditure blowout and delays in its Rainy River project. Eldorado’s stock price also suffered in 2017, falling 56% due to political and technical issues. Some of these issues are ongoing. Its mines in Turkey and Greece are facing immense pressure. To gauge the company’s growth prospects, investors will be closely monitoring management’s commentary with the release of the company’s 4Q17 and 2017 results.

After outperforming close gold peers by rising 51% in 2017, IAMGOLD has been taking a breather in 2018. The company recently announced a 86% YoY rise in its gold reserves due to strong exploration results.


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