Fresnillo, Centamin and Caledonia shares outshine gold mining peers

While the price of gold struggles against securities, share prices for mining companies Fresnillo, Centamin and Caledonia Mining Corporation are faring better than others this year. Each company’s reported results showed promise, however, their share prices will still likely be challenged.

The share prices of Fresnillo [FRES.L], Centamin [CEY.L] and Caledonia Mining Corporation [CMCL.L] have not been anything to write home about this year. However, compared to their struggling peers in the gold mining industry, their stock prices have been among the sector’s top performers.

As of October 12, Fresnillo has seen its value drop 12% since the beginning of the year while Caledonia Mining Company has risen 6.2%. Centamin has been the leader of the pack so far this year with it sitting nearly 16% above its share price at the start of the year.

Declining gold prices this year have hit the industry as higher interest rates make gold a less favourable investment compared to interest-paying securities. In addition to this, inflationary pressures have increased standard operational costs and squeezed margins.

The iShares MSCI Global Gold Miners ETF [RING], which has 40 holdings including several international gold miners, has seen its value decline by 30.4% in 2022 as the challenging macroeconomic environment hurts the industry.

Fresnillo struggles with lower gold output

London-listed Mexican gold miner Fresnillo sits at the back of the three so far this year with a 12% share price decline, but has still performed better than many industry peers. Revenue for the six months ending 30 June slumped 12.6% year-on-year with Fresnillo noting that 91% of the decline was down to lower gold output. Gold production fell 27.9% from the first half of 2021 with the company processing lower-grade ore at its Herradura and Saucito sites.

Despite total revenue dropping, the cost of sales still managed to creep higher, with total operational costs rising 3.8% to $893.2m from $860.1m the year before. The company estimated that its adjusted production costs rose by 7.9%, and explained that inflation as well as the devaluation of the Mexican peso exacerbated its expenditures, led by higher labour, energy and raw material costs. Sodium cyanide, vital for operation, cost over 50% more in June 2022 than a year before.

Looking forward, the company still sees inflationary pressures and a tight labour market affecting second-half results. However, Fresnillo is confident that it can continue to ramp up production and weather these short-term challenges.

Centamin remains optimistic despite rising costs

Centamin was able to increase its half-year revenue from $367.4m in 2021 to $381.8m in 2022. The rise in revenue was the result of strong gold production and higher gold prices at the beginning of the year. However, gold prices have since declined from their March highs and were trading at a two-year low in the middle of September.

Like Fresnillo, Centamin saw inflationary pressures raise its operating costs for the first half of the year. Cost of sales jumped up 13% from $227.3m in the first half of 2021 to £257.4m in 2022 with processing costs rising 33%, largely driven by higher fuel prices.

Despite the pressure from rising costs, the company is confident it can drive organic growth through a series of investments in projects in Egypt and West Africa. With no debt burden and $175m in available cash as of its August update, the company is positioned well to capture new investment opportunities.

Caledonia Mining Corporation sees a strong jump in revenue

Caledonia Mining Corporation is the smallest of the three companies with a current market capitalisation of $113.3m with its primary asset the Blanket mine in Zimbabwe. The company acquired the mine from Kinross Gold in 2006 and currently holds a 64% stake in the operation.

The group was able to increase revenue by over 29% for the six months ending June 30 from $55.7m in 2021 to $72m in 2022 as it increased the gold output from its Blanket mine. While production costs climbed 14.4% during the same period, the rise in revenue allowed the company to post a rise in gross profit of 43.6%.

This strong performance over the last six months as other industry peers have struggled has helped the Caledonia Mining share price. However, the company will face some challenges over the next few months as global gold prices trade much lower than they did at the beginning of the year.