After briefly dipping below US$1,200 per ounce at the close of 2013, the price of gold has rallied with a recent surge spurred on by the troubles between Ukraine and Russia. At least for the moment, a one month chart for the price of gold would seem to indicate the bloom is fading from the rose. Here is the chart:
The world’s gold mining companies often lagged behind the gold price during its remarkable bull run and most are now more cost conscious than ever. Lowering the cost of producing gold is seen by many as the key to survival. This time around it seems the share price of the gold miners roughly followed the uptick in the price of gold. The following one month chart tracks the performance of the ASX XGD, a sub-index of the XMM Metals and Mining Index composed of gold miners.
While much has been written about percentage gains of some of Australia’s major gold miners over the past month, there are a small number of miners whose share price has remained positive year over year; and a still smaller number that weathered the stormy volatility in the price of gold over the last three. On 01 May of 2011 the price stood at US$1450.5 and at the close on 01 May 2014 the price had dropped to US$1284.40. Here is the chart:
There are about 30 pure-play or near pure-play gold miners included in the Top 100 stocks in the ASX Metals and Mining Index. Of that number, only six can boast that the share price is positive over the last twelve months. Here is the table:
52 Week % Change
2 Year % Change
3 Year Total Shareholder Return
2 Year Earnings Growth Forecast
Northern Star Resources
OceanaGold Corporation (OGC) and Northern Star Resources Ltd (NST) are the clear standouts. Both serve as evidence for stock-pickers who believe it is possible to find outperformers in beaten down sectors. Northern Star has the superior shareholder performance record and is the only stock in the table to pay a fully franked dividend with a current yield of 3.1%. According to analysts, OceanaGold is expected to have higher earnings growth over the next two years.
OceanaGold’s mining operations are completely free of sovereign risk; with three producing gold mines in New Zealand and a gold-copper mine in the Philippines that began producing in April of 2013. The company also has joint venture exploration projects underway in Australia.
On 20 February 2014 Oceana released Full Year 2013 Results, with record revenues and production. Net profit after tax saw a loss of $47 million but excluding one-time charges the underlying profit from operations was $91.3 million. Perhaps of more significance to investors was the reduction of debt by $64 million and the company’s All in Sustaining Costs (AISC) for the period of $868 per ounce. The World Gold Council introduced AISC as a better way to inform investors of the actual total costs involved in gold production. The old method of reporting Cash Costs did not include things like corporate and administrative expenses or exploration expenses.
On 30 April 2014 the company reported Q1 earnings, with more record-breaking results; an additional $20 million in debt reduction; and a total AISC of $450 for the period. Net profit went from $7.06 million in Q1 of 2013 to $58.9 million to go along with record-breaking revenue for the quarter of $170.4 million, up from $95.6 million. Management reiterated 2014 Full Year guidance and stated AISC would come in between $750 and $850. The implication is obvious. OGC can sustain a substantial decline in the price of gold and remain profitable.
Northern Star Resources Ltd (NST) has been in the news for its bold acquisition of mining assets from Barrick Gold Corporation (NYSE:ABX). The move catapulted NST from a single mining operation to the top tier of ASX gold producers, more than tripling its annual production from 100,000 ounces in FY 2013 up to 350,000 ounces. Shares are now available to US investors via the OTC (Over the Counter) markets.
Northern Star is reportedly interested in additional acquisitions and has a strong balance sheet to support such moves. As of the most recent quarter the company had gearing of 8.3% with $8.9 million in total debt and $49.2 million total cash on hand. According to Bloomberg, gold bullion and other investments raise NST’s war chest to $80 million. In January 2014 the company raised $100 million in a share placement.
The company reported a 66% decline in net profit in its Half Year Results reported on 27 February due to lower gold prices in 2013, but no one seemed to care as the share price dipped a bit and within a day resumed an upward trend. While some market observers have commented on Northern Star’s past history of low cost production, the company’s Quarterly Update released on 29 April showed AISC for the period of $1,167 per ounce, including the recent acquisitions. Management is confident it can reduce that figure to $1,050 by the end of the Fiscal Year. Northern Star is not an overnight sensation, returning 133.2% to shareholders on an average annualized rate over ten years. The share price over that period is up almost 1000%. Here is the chart:
Papillon Resources LTD (PIR) is still in the exploration and development stage, with projects in the West African country of Mali. The company’s stock price took a beating in May 2013, purportedly over concerns about ongoing political instability in Mali and in nearby countries. However, on continual positive news regarding Papillon’s Fekola Gold Project, the share price recovered. Drilling at Fekola is promising; the project is now permitted; and a new discovery north of Fekola at Menankoto Sud has piqued investor interest. Here is a one year price movement chart for PIR:
Analysts and investors seem to rate PIR highly. According to Thomson/First Call, there are 3 analysts with a Strong Buy rating on the company, 8 with a Buy rating, and 2 at Hold.
AngloGold Ashanti Ltd (ASX: AGG) is the third largest gold producer on the planet. Headquartered in South Africa, the company’s shares trade on the Johannesburg Stock Exchange (JSE); the New York Stock Exchange (NYSE); as well as on the ASX. The company has 21 operations in 11 different countries; with two new mines opening in 2013 – the Tropicana in Australia and the Kibali in the Democratic Republic of the Congo.
In response to challenging conditions in the gold mining business, the company has gone into a major restructuring to maximize its exploration and development projects. In effect, the company split in two, with independent COO’s (Chief Operating Officers) for South African Operations and International Operations.
The company’s total market cap is around $1.5 billion, but its stock performance has been less than stellar. Here is a 10 year chart comparing AGG to the largest gold producer in Australia, Newcrest Mining Ltd (NCM):
While the share prices of the miners have not always followed the rise in the price of gold, the following ten year chart for gold shows the opposite price directions NCM and AGG took in response:
Although AGG has an attractive book value per share of $7.77 (mrq) analysts are less than bullish on the company. Four analysts have a Buy rating, 8 recommend Holding the stock, and 3 have a Sell rating.
Saracen Mineral Holdings Ltd (SAR) has two principal mining interests, at the Carosue Dam and Red October, along with several exploration projects situated in goldfields of Western Australia. In January the company acquired the Thunderbox Gold Mines and subsequently had a successful capital raise to fund it.
Half Year Results announced on 25 February were positive, with a 13% revenue increase and an NPAT swing from a loss of $22.9 million to a profit of $7.0 million. The latest Quarterly Report released on 16 April was also positive regarding production levels and debt reduction, but perhaps the best news was management’s statement Saracen would achieve AISC of $950 per ounce by FY2015. Saracen does have an earnings forecast of more than 75%, but that represents a swing from an EPS loss of $0.063 in FY 2013 to an estimated EPS for FY 2014 of +$0.038 and +$0.068 for FY2015. Can this explain a year over year share price jump of over 100%? Here is the chart:
You can see the share price took a sharp turn northward in August 2013. The ASX issued a speeding ticket and Saracen management responded that Timpetra Resources Limited on 08 August had increased its stake in Saracen, leading to takeover rumours. Shortly thereafter Australian small cap fund manager David Paradice reportedly bought more than 13 million shares in Saracen, first noticed last September.
Intrepid Mines Ltd (IAU) is an exploration and development company with stalled gold mining prospects in Indonesia. The company’s Indonesian partners forced Intrepid out of the flagship Tujuh Bukit mine project in favor of a local businessman and Intrepid sued. The trouble began in 2012 and despite this Intrepid still trades on both the ASX and the TSX (Toronto Stock Exchange). In 2013 the company was issued two ASX speeding tickets regarding upward price spikes and the company had no explanation. On 09 April 2014 the shareholders approve a settlement in the lawsuit in the amount of US$80 million. On 29 April Intrepid management issued a letter to shareholders, recommending against a resolution to distribute the settlement funds to the shareholders. Intrepid’s share price has fallen 70% over two years. Here is the chart:
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