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Canadian gold miners picked the wrong week to report a bad batch of earnings and run into political turmoil.
With the Federal Reserve announcing an end to quantitative easing, investor sentiment for the precious metal is at its lowest point in months. So when a few of the large miners reported disappointing results, they got absolutely no sympathy from the market.
Shares of Goldcorp Inc. (down 13%), Yamana Gold Inc. (down 16%) and Agnico-Eagle Mines Ltd. (down 12%) were all hammered after reporting poor third quarter earnings. Their competitors also got dragged down in the rout as gold prices dropped back below US$1,200 an ounce.
In this sort of market, it is no surprise that investors did not look kindly at political risk either. Shares of Iamgold Corp. and SEMAFO Inc., which both operate in Burkina Faso, fell sharply as protests intensified against President Blaise Compaoré, who is eager to extend his protracted 27-year term.
While the gold stocks may rebound quickly from Thursday’s beatdown, the day provided a stark reminder that the sector does not make much money at current prices. And the companies with higher debt or operating costs could face liquidity concerns if prices stay at these levels for the long haul.
“It is another day of reckoning in the gold sector,” said Paul Sassi, New York-based portfolio manager with CJG Asset Management. He warned that unless gold quickly stabilizes and rebounds, there will be “many tough decisions ahead for executives in this sector.”
Goldcorp chief executive Chuck Jeannes agreed there will be a lot of turmoil if these prices persist. “I don’t think a lot of mines and companies are sustainable at a long-term price of US$1,200, and that will result naturally in some change of ownership and consolidation and shutdown of mines,” he said in an interview.
Gold miners have been working hard to cut costs during the past 18 months, and have had plenty of success. But the third quarter earnings showed that operating and construction hiccups can offset a lot of those efforts in the short term.
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