Tag Archives: Gold Mining

Poor Gold Stock Performance…

By Steve Saville

Poor gold-stock performance is mostly due to poor gold-mining-business performance

If you are speculating in gold-mining stocks it is important to have your eyes wide open and to not be hoodwinked by the pundits who argue that the current low prices for these stocks imply extremely good value. The fact is that at the current gold price not a single senior gold-mining company is under-valued based on traditional valuation standards such as price/earnings and price/free-cash-flow. Also, while some junior gold-mining companies are very under-valued, most are not. In other words, the low price of the average gold-mining stock is not a stock-market anomaly; it’s an accurate reflection of the performance of the underlying business.

The relatively poor operational performance of the gold-mining industry is not something new. It is not something that has just emerged over the past few years or even over the past two decades, meaning that it can’t be explained by, for example, the advent of ETFs (the gold and gold-mining ETFs actually boosted the prices of both gold and the stocks owned by the ETFs during 2004-2011). The cold, hard reality is that with the exception of the banking industry, which usually gets bailed out once per decade at the expense of the rest of the economy, since 1970 the gold-mining industry has wasted capital at a faster pace than any other industry. That’s why the gold-mining-stock/gold-bullion ratio is in a multi-generational decline that shows no sign of reversing.

It’s certainly true that a lot of money can be made via the judicious speculative buying of stocks in the gold-mining sector, because these stocks periodically generate massive gains. It’s just that in real terms (relative to gold) they end up giving back all of these gains and then some.

‘Crappy’ Gold Mining

By Steve Saville

The crappy gold mining business revisited

Last October I wrote a piece that explained why gold mining had been such a crappy business since around 1970 and why it was destined to remain so as long as the current monetary system was in place. The explanation revolved around a boom-bust cycle and the associated mal-investment linked to the monetary machinations of central banks.

The crux of the matter is that when the financial/banking system appears to be in trouble or it is widely feared that central banks are playing fast and loose with the official money, the stock and bond markets are perceived to be less attractive and gold-related investments are perceived to be more attractive. However, gold to the stock and bond markets is like an ant to an elephant, so the aforementioned shift in investment demand results in far more money making its way towards the gold-mining industry than can be used efficiently. Geology exacerbates the difficulty of putting the money to work efficiently, in that gold mines typically aren’t as scalable as, for example, base-metal mines or oil-sands operations.

Continue reading ‘Crappy’ Gold Mining

Randgold Ups Reserves…

By Biiwii

Randgold Resources (GOLD) is one of the few senior gold miners I am able to list in NFTRH as a miner of relative quality.  It appears along with Royalties, Junior miners and Explorers that are always on my watch list.

I sold it on the last pop to the March high, but found this article at Mineweb to be interesting.

Randgold: Ups reserves, raises dividend, seeks more growth

On 2014 performance, CEO Mark Bristow (pictured) noted that unlike most of its gold mining industry peers, Randgold had not needed to write down its reserves and resources as the gold price dropped because it had calculated its reserves at $1,000 per ounce and its resources at $1,500 per ounce for the past four years. Many other miners, developers and explorers had been building higher prices into their calculations and have since had to backtrack, sometimes resulting in some major write-downs.

Bristow commented, “We have looked closely at all our mines to ensure that they will still be profitable at $1,000 per ounce and we’ll continue to review our operations against a range of gold price scenarios. With the inclusion of Gounkoto underground we are now able to demonstrate a 10 year plan of plus 1 million ounce production per year and all our operations will be profitable at a $1,000/ounce gold price which is unique in the industry.”

I do not make much public commentary (leaving that for the freely available micro managers) about when the sector will be ready for real investment (it’s still a bear market, technically, folks) but I will note that this is one of the companies that will be around and in position to lead when the time is right.

But looking ahead, Bristow notes that there is great potential in the existing low price environment for additional growth opportunities resulting from the squeeze on developers and explorers resulting from this. “Organic growth will remain our core driver but, as we look ahead from this position of strength, we will consider opportunities that are often generated by stressed markets and may well elect to play a part in the likely restructuring of the gold mining industry,” he says.

As he has been able to do in the past, he also points out that the company has solid operations with strong cash flows, a robust balance sheet with no debt and substantial cash, and a share price which for years has consistently outperformed the market. Its five-year forecast shows a growing production profile and a reduction in costs.

Why am I pumping Randgold’s tires here?  I don’t even own it.  But I always appreciate well run businesses and management that is in line with investors’ goals.  That is what I think Mark Bristow is and I just wanted to highlight that.

As to the chart, I lucked into buying it right at the March low and sold it on the pop (one bear market rule is that if you are going to trade long in a bear market, you are sure as hell going to take profits).  The chart has a lot of work to do, beginning with the red dotted line, on through the moving averages, turning RSI and MACD green, etc.

But it’s a quality miner among the wreckage.

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Why is Gold Mining Such a Crappy Business?

Guest Post by Steve Saville

That gold mining has generally been a crappy long-term investment for almost five decades is evidenced by the following chart. The chart, much of the data for which were provided by Nick Laird of www.sharelynx.com, shows the ratio of the Barrons Gold Mining Index (BGMI) and the US$ gold price from 1920 through to the present*. More specifically, it shows that, relative to gold bullion, the group of gold-mining stocks represented by the BGMI has been in a secular decline since 1968 and is now close to its lowest level since 1948. The question is: Why have gold mining stocks performed so poorly for so long relative to the metal?

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Continue reading Why is Gold Mining Such a Crappy Business?

NFTRH; USD & Gold Mining Funda’s

As crude oil continues down today we are presented with a perfect opportunity to review why gold mining fundamentals can IMPROVE in a rising US dollar atmosphere.  So many people run the equation through their heads:  USD Strong = Run Away!

Continue reading NFTRH; USD & Gold Mining Funda’s

Interesting Volume in Gold Juniors

Remember that heavy volume in the gold juniors ETF GDXJ?  It was a sign of commitment and it was/is bullish.

gdxj

But what’s good for the goose is now good for the bearish gander in the short term, evidently.

jdst

The (3x) bear fund JDST seems to be receiving some of that volume even as GDXJ’s volume dries up (as it should do on a corrective phase within a bullish trend).

It appears a lot of people are hedging.  It could be nothing, but that’s a lot commitment building for the gander for a mere corrective consolidation.  Would the conspiracy brigade foresee an impending hit from Team Evil?  Or maybe it is the sign of a disbelieved rally and is thus bullish.  Or maybe it’s nothing.

Just found it interesting is all.

Gold Mining is Counter Cyclical

The following is the opening segment of this week’s Notes From the Rabbit Hole, NFTRH 276:

Somewhere along the road from the 2000 bottom in gold stocks to the 2008 flame out of inflationary hysteria, the gold stock sector went from counter cyclical first mover to ‘inflation trade’ also ran.  Gold stocks put in a secular bear market bottom in 2000 just as the US and many global economies were topping out.

Then came the era that NFTRH has labeled ‘Inflation onDemand’ (IoD).  The economy was successfully* inflated by Alan Greenspan early in the decade as easy monetary policy fomented an epic credit bubble, which took over and did the heavy lifting for a cyclical bull market and buoyant economy that terminated hard in 2007/2008.

During this time of IoD ‘inflation bulls’ and commodity bulls who had all the answers for a newly inflation-phobic public emerged and took center stage.  Misperceptions were formed, cemented and driven home.  Nowhere were the misperceptions more intensely and dangerously embedded than the gold stock sector, which at its core is different than most commodity sectors and indeed, most stock sectors.  Introducing another one of our ‘busy’ charts to illustrate…

hui.mo

Okay, article over… the chart says it all.  No more words necessary!  :-)

The chart is a confusing jumble you say?  Okay then, let’s take it point by point.

Continue reading Gold Mining is Counter Cyclical

Counter Cyclical Gold Stocks on Plan

Forget the inflationists, forget the ‘buy all resources!’ brigade and remember that at its healthiest, the gold mining sector is counter cyclical.  And for the last couple days at least, it has been acting that way.  Gold stocks benefit from economic contraction as gold out performs positively correlated assets.  Tune out much of the rest of the crap because it is not useful.

gdx.spy

 

GOR Fest, the Gold Oil Ratio

The gold oil ratio (GOR) is propelling higher.  This is but one indicator of the counter cycle that I believe is coming in 2014.  But also, it is an important indicator for the gold mining sector’s downtrodden fundamentals.  The indication?  Maybe just maybe the news of gold mining’s imminent death was greatly exaggerated.

gor

‘Real Price of Gold’ Slowly Rises

First it bottomed vs. the stock market (lower panel).  Then the ‘real price of gold’ bottomed vs. crude oil and has just this week boinked above the 50 day moving averages.

gold.wtic

So while gold cheerleaders ready the pom poms, what we should do is keep an eye on its ratios to positively correlated things so that we can have a good read on the macro for one, and on the gold mining fundamental backdrop for another.

Gold Oil Ratio

So, how important do you think this chart is to the gold mining sector’s fundamental case?

gor

The gold oil ratio (GOR) did something nasty recently in making this lower low and this will need to be reversed for an already stricken sector to catch a break.