A chasm is opening up between the best- and worst-performing gold mining stocks as the price of the metal languishes near a four-year low.
Companies with low-cost mines and little or no net debt, including Eldorado Gold Corp. (ELD) and Randgold Resources Ltd. (RRS), have beaten gold’s 2.5 percent rise this year. More indebted rivals including Toronto-based Barrick Gold Corp. (ABX), the world’s largest producer, and Yamana Gold Inc. (YRI) have declined more than 15 percent.
There were 115 percentage points separating the average of the five best and five worst performers this year through yesterday in the Standard & Poor’s/TSX Global Gold Sector Index, almost double the spread in the same period last year, according to data compiled by Bloomberg.
“There’s been a very big divergence between the performance of gold equities globally,” Neil Gregson, a London-based natural-resources equities fund manager at JPMorgan Chase & Co., said in a phone interview. Last year, gold stocks fell more or less across the board as the metal plunged the most in three decades. In contrast, this year “it’s very, very stock-specific,” Gregson said.
Gold miners as a group are trading at their cheapest relative to the price of the metal in at least 30 years, according to data compiled by Bloomberg. Gold futures, which are wallowing about $50 above a four-year low, rose 0.2 percent to $1,231.20 an ounce at 9:34 a.m. in New York.
‘Hated Sector’
Profits have been squeezed after the industry’s costs to build and operate mines ballooned during gold’s 12-year bull run that lasted from 2001 to 2012, while debt levels rose as producers chased acquisitions that they’ve since written down by billions of dollars.
“It couldn’t be a more hated sector, sentiment is abysmal,” said Gregory Padilla, a fund manager at Aristotle Capital Management LLC in Los Angeles.
About a third of gold production is probably money-losing when the price of the metal is less than $1,250 an ounce, Joe Wickwire, who manages the Fidelity Select Gold Portfolio, said in a Sept. 11 phone interview.
Amid the gloom, there are still “winners” even if the metal stays near current price levels, said Chris Mancini, an analyst at the Rye, New York-based Gabelli Gold Fund.
‘Good Liquidity’
“The winners are going to be companies that have cash on their balance sheet, unlevered balance sheets, low cash costs, the ability to be able to take advantage of the downturn by buying or building things,” he said.
Randgold and Franco-Nevada Corp. (FNV) are among companies in the industry that are well-positioned this year, Mancini said. He named Barrick as a producer that may struggle because of high debt levels if gold prices fail to rise.
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