Wednesday, October 30, 2013

Gold Mining Values in a Bear Market

Despite cuts to cap-ex and exploration, Citigroup data reveals that gold majors like Barrick Gold (ABX), Goldcorp (GG), and Yamana Gold (AUY) are burning cash at all-in costs of $1,600/oz., 1,800/oz., and $2,000/oz., respectively – in part, due to overpayment for leases and acquisitions of marginal properties during the commodities bull market of the last decade.

Looking ahead, World Bank, Fitch Rating Agency and other commodity forecasters opine that gold prices will continue to trend lower, bottoming around $1,000/oz. by 2025. Ergo, the aforementioned miners and other peers with poor cost positions will likely need to shutter additional operations, reduce production and slash capita budgets to adjust to lower cash flow being generated in this new, lower pricing environment.

In addition, expect liquidity constraints to stress already weakened balance sheets (due to asset write-downs) and to increase borrowing costs as risks of loan covenant defaults increase – resulting in the suspension of remaining cash dividends, too. Nonetheless, for those investors willing to stomach residual risk, there are a few gold mining stocks with stable balance sheets and attendant all-in costs significantly lower than the industry average capable of paying healthy dividends in the current slow growth environment.

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.


Anonymous said...

It appears that the big boys are echoing the same bear market chorus for precious metals as the Obama administration holds the country hostage with unbridled spending and destruction of the dollar. The days after the Democrats won their victory forcing Americans to fund more poitically directed spending the dollar lost about a full percentage point in value. That is every dollar in your bank account, every dollar you will earn, every dollar from an EBT card, and every dollar in social security payments. Yes, Obama is a hero, and his trademark Obamacare is a COLONOSCOPY for all Americans.

Anonymous said...

Hi Dave, I love your article on Gold. BTW I just sent you an email djphillips4 at excite


Anonymous said...

... by 2025. This is a joke.