Gold Is Still King Of Financial Assets In 2016; Mining Stocks Prove It
Gold and silver mining stocks still reign over the stock market, even though they weren’t the biggest gainers of the week. Gold stocks trailed discount retail, steel, coal and U.S. oil exploration peers in terms of weekly gains. But IBD’s Mining-Gold/Silver industry group is now up 38% since Jan. 1, crushing the Nasdaq composite and the S&P 500. It remains No. 1 among 197 IBD industry groups and subgroups for six-month relative price performance. Traders who seek a fortune in gold stocks should carefully interpret IBD ratings and their charts. Six firms in the 64-member group have a 90 Composite Rating or higher, but only Toronto-based Seabridge Gold ( SA ) trades at least 10 a share. One cannot expect IBD ratings to be rosy in an industry that is fighting for a comeback. So it makes sense to spend time studying the charts and production characteristics of the major players with high trading liquidity and stable fundamentals. They include Goldcorp ( GG ) ($13.6 billion market cap, $4.4 billion in trailing 12-month sales), Newmont Mining ( NEM ) ($14.1 billion, $7.7 billion) and Barrick Gold ( ABX ) ($16.3 billion, $9 billion). Goldcorp produced 3.46 million ounces of gold in 2015. It also closed the year with 40.7 million ounces of gold mineral reserves, set at $1,100 per ounce. Meanwhile, the company boosted the grade of those reserves by 13% to 1.06 grams per ton of rock. Wall Street currently sees Goldcorp’s earnings rebounding 86% to 13 cents a share this year and up 154% to 33 cents. That growth trajectory is nice, but keep in mind that those profits are a far cry from 2011, when Goldcorp earned $2.21 a share and gold prices lurched toward $1,900. Newmont’s earnings are seen falling 31% to 68 cents a share in 2016, then rising 65% to $1.12. The Greenwood Village, Colo., firm suffered falling revenue in four of the past five years. In Q4 2015, revenue sank 10% to $1.82 billion. Barrick’s sales have fallen vs. year-ago levels for 12 quarters in a row. But the Street sees EPS jumping 23% to 37 cents a share this year and 24% to 46 cents in 2017. The price of gold has a huge impact on all miners. On the Comex, near-term gold futures contracts traded Friday near $1,260 per ounce, up 20% from a Dec. 17 closing low of $1,049.60. Phil Orlando, chief equities strategist at Federated Investors ($361 billion under management), notes that a modest pickup in U.S. inflation, ongoing violence in the Middle East, and steady consumer demand in big nations such as China and India are all contributing to the current rally in gold. “I would be surprised if gold demand in India did not increase in 2015 from the prior year,” Orlando told IBD. Miners need to keep costs under control, or face operating losses even amid shiny prices lately. Goldcorp noted “all-in sustaining costs” in Q4 2015 of $977/oz., including inventory impairments as determined by accounting rules. Excluding such impairments, all-in costs fall to $867/oz. Seabridge said March 8 an independent estimate raised the amount of inferred extractable gold at its Deep Kerr Deposit in northwest British Columbia, Canada, to 11.3 million ounces.