The mining industry has weathered the ebb and flow of gold prices so far this year. These ups and downs have primarily been up, with gold advancing an impressive 17% during the first quarter of 2016. However, some of this momentum was blunted at the end of March.
Big players like AngloGold Ashanti (AU) and Goldcorp (GG) saw their stocks fall along with gold after spot prices slid from a high of $1,280/oz to $1,225/oz during the first week of April. However, smaller players like McEwen Mining (MUX) hardly missed a beat during the downturn.
Mining Industry Winners and Losers
For the most part, gold miners have been some of the biggest winners on the markets this year. The rough bear market of the past 3 years forced these firms to establish stronger short-term financial positions. This entailed becoming leaner and cutting debt rather than expanding. Doing so was far easier for the smaller junior miners than their large counterparts.
For instance, junior miner McEwen Mining has not only consistently seen its shares rise in spite of the recent dip in gold prices. Because of its structurally sound finances, McEwen has not been quite as sensitive to temporary movement in the gold price. In addition to this benefit, the performance of MUX shares somewhat undersells the robust position that analysts see McEwen occupying. Investment research firm Zacks rates the company's stock as a "Buy." It also points out that the firm has seen a rapid rise in other analysts' expectations and its "expected earnings growth over the prior year is significantly high, which should ultimately translate into price appreciation." Nonetheless, MUX has doubled in price from late January to early April.
Some of the bigger names in the mining industry have pursued similar strategies. However, due to their greater size and leverage, industry leaders like Goldcorp and AngloGold Ashanti had worse luck to begin April. However, one strength of the larger firms is that many of their shares are being held for the long term. 61% of GG shares and 45% of AU shares are held by institutional investors who are generally more interested in strategies for the long haul. By comparison, MUX only has 20% institutional ownership of its equity, and also has a far lower stock price at $2 per share.
In an interesting trending story in the mining industry, one of the older gold mines in South Africa may be revived by a pair of young entrepreneurs. NYU grads (and brothers) Bastiat and Dane Viljoen think there are 9 million troy ounces of gold deep underground beneath the Blyvooruitzicht mine. The mine, whose name fittingly translates to "happy prospect" in the local Afrikaans language, also has another 400,000 ounces of gold dispersed in leftover waste.
Like most of South Africa's gold mining industry, the Blyvooruitzicht mine saw its peak production in the late 1960s and 1970s. The site has been inactive since it went into liquidation in 2013, devastating the local community. In fact, the owners of the mine actually owned the surrounding city, as well. Former mineworkers, their families, and other affected local residents are hoping that the Viljoen brothers can succeed in bringing the operation back online. Blyvooruitzicht was opened 77 years ago and resides in the gold-rich Witswatersrand region of South Africa.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.