Gold miners Barrick Gold, Newmont and Fresnillo have all seen their share prices decline as the market responds to a challenging year for commodities. What does this mean for investors of the precious metal?
Gold miners Newmont Corporation [NEM], Barrick Gold [GOLD] and Fresnillo [FRES.L] have all seen declining share prices so far this year as the industry adjusts to a challenging market. Rising interest rates have suppressed the price of gold, while rising operating costs have slashed miners’ margins.
The iShares MSCI Global Gold Miners ETF [RING], in which Newmont and Barrick Gold are two of its biggest holdings, has seen a decline of 31% in the last 12 months (through 2 August) as the industry deals with declining gold prices. The precious metal has traded below $1,800 per troy ounce for the last month, despite peaking at $2,000 back in February. Despite rising interest rates making alternative investments more appealing in the last few months, investors have exited gold holdings. In June alone, there was an outflow of $1.7bn in global gold ETFs, according to Goldhub.
As of 2 August, both the Newmont and Barrick Gold share prices have fallen just over 28% in the last 12 months. In comparison, Fresnillo’s share price fell 15% over the same period. While all these share prices outperformed the iShares Gold Miners ETF, the stocks underperformed the S&P 500’s 7.5% decline over the last 12 months.
Newmont faces rising costs amid rising inflation
Newmont, one of the world’s largest gold miners, disappointed investors last week when it revealed a 41% fall in Q2 profit from the year earlier. Despite revenues for the quarter remaining at $3.1bn from a year earlier, the company saw a rapid rise in operating costs. Costs applicable to sales rose by a third to $1.7bn in the first quarter.
The company has been particularly exposed to rising inflation due to how energy intensive its operations are. Alongside this, a tight labour market is harming the company’s production estimates. Newmont lowered its annual production guidance to 6 million ounces, down from its previous 6.2 million ounces target.
Despite all of this, Newmont still announced a Q2 dividend of $0.55 per share, which remained in line with what has been paid out to shareholders in the last seven quarters. This, however, did not stop the shares from falling over 13% after Q2 earnings were released.
Analysts have a muted outlook on the stock. Out of 23 analysts polled by the Financial Times, 14 rated Newmont shares a ‘hold’, five ‘outperform’ and four a ‘buy’.
Barrick Gold seen as inflation hedge increasing analysts’ optimism
The Barrick Gold share price has performed very similarly to Newmont over the last year, with the world’s second-largest gold miner facing many of the same challenges. In Q1, the company reported adjusted net earnings of $463m, which marks a 26% decline from the quarter earlier as the company also dealt with lower sales and higher costs.
In May, management confirmed that Barrick Gold had added stockpiles of cyanide and explosives as it tries to hedge against rising inflation. The miner’s chief executive Mark Bristow said that it had price stability in both resources vital for gold extraction for five months. Investors will hope that this quick thinking from management will help to suppress costs when the company releases Q2 earnings on 8 August.
Analysts share a slightly more positive outlook on Barrick Gold shares than they do for Newmont. Out of 16 analysts polled by the Financial Times, four rated the shares a ‘hold’ and eight believe shares will ‘outperform’. The remaining four gave a ‘buy’ rating.
Fresnillo posts strong production figures amid labour challenges
The Fresnillo share price has shown the best performance out of the three gold miners in the last year with it only seeing a decline of 15% in the last 12 months. The Mexican gold and silver mining company recently reported that production of gold and silver rose 6.1% and 8.1% respectively in the second quarter of this year. This comes less than a year after the company blamed new Mexican labour reforms for reduced production and an increase in staff shortages.
While production may look strong for the company, it is still facing the same challenges as Barrick Gold and Newmont as global gold prices fall.
Analysts have not looked as favourably on Fresnillo shares as they did on Barrick Gold. Out of 16 analysts polled by the Financial Times, one believed the share would ‘underperform’, 10 rated it a ‘hold’, while only three believed it would ‘outperform’ and two rated it a ‘buy’.
Disclaimer Past performance is not a reliable indicator of future results.
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