Miners Continue to Diverge with Gold Prices

The best and worst gold miners diverge amid gold’s price correction.

Bullion.Directory precious metals analysis 28 October, 2014
By Christopher Lemieux
Senior FX and Commodities Analyst at FX Analytics

Gold prices have undergone a sharp correction over the last three years, after rising to an all-time high of $1,923 per troy ounces. In response, gold miners have had to undergo financial restructuring just as a means of survival. Under-performing mines were dumped and strict austerity measures were needed to stop the cash hemorrhaging off the balance sheet.

Many gold miners are undervalued on a fundamental basis, but it still remains a very stock-specific case. According to Neil Gregson, natural resource equities fund manager at JP Morgan-London, said “there’s been a very big divergence between the performance of gold equities globally.”

Those companies, such as Eldorado Gold Corp (ELO) with low-to-no debt and low cost mining projects have beaten the 2.5 percent rise in gold this year. However, debt ridden companies, like the world’s largest gold producer Barrick (ABX), have under-performed by over 15 percent. Barrick made costly bets on everlasting gold price increases through forward contracts, which resulted in $20-plus billion in write downs.

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