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Not All Equities Are Down; Gold-Mining Stocks Rise This Week

Gold-mining stocks certainly fared better than the broader equity market during the first four days of this week as mining shares that trade in North America surged on higher precious-metals prices.

Mining stocks are helped when gold prices rise, of course, since this means greater revenue for producers. Gold drew support from a tumble in the S&P 500, technical-chart-related buying and reduced expectations for Federal Reserve rate hikes.

The Dow Jones Industrial Average and S&P both finished with their fifth consecutive down day on Thursday and closed at two-year lows, in particular hurt by weakness in financial stocks. By contrast, during the first four days of this week, the NYSE Arca Gold Bugs index (HUI) was up 11.4662 points, or 7.8 %, to 159.3100. The Market Vectors Gold Miners exchange-traded fund (GDX), which consists of stocks of gold-mining companies, rose $1.32, or 7.7%, to $18.37.

As of Thursday’s close, Comex April gold futures were at $1,247.80 an ounce, a gain of $73.70, or 6.3%, for the week to date. Comex March silver was up 76.4 cents, or 5.1%, over that time frame to $15.794.

Kinross Gold Corp. (NYSE: KGC) was one of the bigger gainers in a week in which the company reported its fourth-quarter earnings. Shares rose 60 cents, or 26%. Kinross reported lower all-in sustaining costs and a net loss of $841.9 million, although this was largely the result of write-downs. Meanwhile, the company projected record 2016 output of between 2.7 million and 2.9 million gold-equivalent ounces and lower AISC of between $890 and $990 an ounce.

Cost curtailment helped earn Kinross favorable comments from analysts. Citi Research said Kinross is “managing overhead costs well” and the bank raised its target price for Kinross shares. Credit Suisse commented: “We rate KGC outperform due to attractive relative valuation and near-term FCF (free-cash-flow) yield, improving margins due to currency tailwinds and gold price, and an improved production profile.”

The other big gold company to report this week, Agnico Eagle Mines Ltd. (NYSE: AEM), posted only a modest gain despite an adjusted quarterly net profit. Shares climbed $1.82, or 5%. This firm listed a fourth-quarter net loss of $15.5 million but, after special one-time adjustments, had a profit of $3.9 million. The company also got favorable analyst comments, with Credit Suisse saying it “remains one of our top picks,” while BMO Capital Markets termed the earnings report “positive.” But then again, Agnico had already gotten a lot of favorable press in recent months, described by Bloomberg late last year as “the winner in the race to shield profit” from the slump in gold prices at that time.

Coeur Mining Inc. (NYSE: CDE), a major silver producer, added 27 cents, or 11%, during a week in which it also posted fourth-quarter results.  Coeur lost $303 million in the fourth quarter, but this was mainly the result of impairment charges. Meanwhile, fourth-quarter AISC was down roughly 25% year-on-year. BMO upgraded its view on Coeur to “market perform,” citing declining “cash burn,” a leveraged play to metal prices, little risk to debt repayment and potentially declining costs.

Elsewhere, Endeavour Silver Corp. (NYSE: EXK) added 33 cents, or 24%. Shares of Iamgold (NYSE: IAG), which reported its first mineral resource estimate for the Diakha deposit in Mali, climbed 40 cents, or 21%. B2Gold (TSX: BTO) climbed 24 cents, or 20%. Pacific Booker Minerals (TSXV: BKM) climbed 29 cents, or 19%. Yamana Gold Inc. (NYSE: AUY) gained 35 cents, or 15%.

Harmony Gold Mining Ltd. (NYSE: HMY) rose 41 cents, or 18%. The South African company gets a further boost from higher gold prices since the country’s currency has been weak, meaning Harmony gets more rand for its metal with which to pay expenses, improving profitability. In fact, earlier this month, Harmony said it was looking to make acquisitions and repay debt after higher profits in the most recent quarter.

Many of the mining companies whose stocks suffered this week are largely involved with industrial base metals, which were pressured amid economic concerns. On the London Metal Exchange, three-month copper fell $173, or 3.7% during the first four days of the week to $4,443 per tonne.

Against this backdrop, First Quantum Minerals Ltd. (TSX: FM) lost 95 cents, or 24%. Freeport McMoRan Inc. (NYSE: FCX) fell 79 cents, or 14%. Both companies, which are normally thought of as mainly copper producers although they also mine precious metals, were among the biggest decliners this week after they had been among the biggest winners the week before.

By Allen Sykora of Kitco News; asykora@kitco.com

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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