Beware The Gold Miners Bounce
ACTUALLY OUR MOVE TODAY WAS VERY COMPANY SPECIFIC AS WERE THE MOVES IN GDXJ! WE WERE UP SUBSTANTIALLY MORE THAN THE INDEX, PARTICULARLY IN GERMANY WERE INVESTORS ARE MORE SERIOUS. SOME STOCKS IN GDXJ WERE UP AS WE, WHILE OTHERS WERE OFF UP TO 25% TODAY. THAT IS CERTAINLY AN INDICATION OF COMPANY SPECIFIC ACTIVITY. OUR RECENT SERIES OF MEETINGS, ON THREE CONTINENTS, PRODUCED A LOT OF COMPANY SPECIFIC INQUIRIES AND INTEREST. IF YOU BOTHERED TO GO AND PARTICIPATE, YOU WOULD KNOW THIS. THERE IS NO QUESTION THAT WHEN MONEY RETURNS TO THE "SECTOR" INVESTORS WILL BE VERY PARTICULAR AND DO IN-DEPTH RESEARCH BEFORE INVESTING. THE TRUTH IS THAT VERY SPECIFIC COMPANY REASONS ARE WHY WE WILL PROGRESS IN OUR SHARE PRICE OVER THE NEXT FEW YEARS. WE MAY HAVE BEEN BROUGHT LOWER DUE TO SECTOR DETERIORATION, INASMUCH AS OUR FUNDAMENTALS HAVE BEEN IMPROVING STEADILY, BUT THE REBOUND WILL NOT LIFT ALL BOATS AND ONLY THOSE WITH COMPETENT MANAGEMENT AT THE HELM, AND REAL OPPORTUNITIES TO GROW WITH BENEFIT. TO BELIEVE OTHERWISE IS NAIVE AND IGNORANT.
"This is how bad things have been for gold mining ETFs in the second quarter: The group’s largest fund, the Market Vectors Gold Miners ETF (GDX), is up 7.1% on above-average volume Friday and even with that, the fund will a loss of more than 30%.
Some of the other mining ETFs that were taken to the woodshed in the second quarter, such as the Market Vectors Junior Gold Miners ETF (GDXJ) and the Global X Silver Miners ETF (SIL) , are also enjoying fantastic Friday performances. However, investors should be cautious because these bounces may be of the dead-cat variety. [Miner ETFs Take a Header]
Barrick (ABX) is trying to sell assets to raise cash and that comes after the company sold $3 billion worth of bonds in April. The company had $12.5 billion of net debt as of March 31, report Liezel Hilll and Cecil Gutscher for Bloomberg.
Gold Fields (GFI) told Bloomberg the “industry is not sustainable at $1,230 an ounce” while adding “We’re going to need at least $1,500 an ounce to sustain this industry in any reasonable form.”
Bloomberg notes that corporate bonds from miners such as Barrick, Goldcorp (GG) and Kinross (KGC) have been trading like junk bonds although those companies have investment-grade ratings. Along with Goldfields, those stocks represent about a third of GDX’s weight. [Gold Miner ETFs Eye 2008 Lows]
Miners being at risk of only breaking even, or worse, losing money on production comes as the industry has been under pressure to be more transparent about its output costs. Earlier this week, the World Gold Council released new guidelines that will force miners to reveal to shareholders a more telling picture about production costs.
A lack of uniformity in terms of reporting costs has scared some investors away from the sector. For example, gold miner ABC Inc. may report net cash costs while miner XYZ Corp. may only report costs related to realized sales.
The World Gold Council wants miners to report “all in” costs, which include a wider range of factors such as permitting fees, royalties and related fare.
When gold prices were soaring, miners were not under as much pressure to reveal their true costs of doing business. Now with gold clinging to $1,200 an ounce and production costs for many miners believed to be in the $1,100 to $1,200 an ounce range, share price declines are revealing miners’ costs whether the companies like it or not."
AI
