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Small Gold Miners on the Radar

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Small Gold Miners on the Radar
Source: exportersindia.com Source: exportersindia.com

All year long, it has appeared that the prospects (no pun intended) for gold mining companies have vastly improved. The decision this week by the Federal Reserve Open Market Committee (FOMC) not to raise interest rates gave another boost to gold prices, which is also a welcome sign for the companies large and small that extract the yellow metal from the ground.

Breakout for McEwen Mining

One such gold mining firm that fits squarely in the "small" category is McEwen Mining (MUX). While gold prices have risen an astounding 22% since the year began, the performance for many companies in the gold mining industry have been even more impressive. High-risk equities like shares of mining and exploration companies do generally far outperform the precious metal spot prices because these shares are exactly that—high-risk.

McEwen has been no different, posting some pretty unbelievable returns in 2016. In fact, MUX has already been a so-called "triple-bagger" so far this year, and the calendar is only halfway through. After stagnantly trading in a tight range around $1 per share throughout 2015, the stock has steadily climbed well above $3/share. Even after falling 2.6% on Thursday, share prices of MUX remained above $3.35. This surge propelled the market capitalization of McEwen Mining just a hair above $1 billion, so technically it's no longer a "small-cap" stock!

MUX 6-month price chart. Source: Google Finance MUX 6-month price chart. Source: Google Finance

One of the best bits of news that has helped fuel McEwen's rally has been the improving financial situation at a pair of its mines in Latin America. Of key interest (for any mining company's operations, for that matter) is the all-in sustaining cost (AISC) for a mine to produce each ounce of gold. At McEwen's San Jose Mine in Argentina, the AISC was cut from $1,127 per ounce last year to a much more manageable (and profitable!) $936 per ounce today. Meanwhile, at the company's El Gallo Mine in Mexico, the AISC dropped from $611/oz a year ago to $532/oz. The El Gallo project is presumably not a primary gold mine but produces some gold as a byproduct, which is why its AISC looks so favorable. San Jose reportedly had produced an encouraging 40,578 oz through May of this year, an increase of 7.7% year-on-year.

Accordingly, net income in the first quarter was $13 million. A survey of various brokerages unanimously had McEwen listed as a "Strong Buy" in their recommendations.

Revival of Egyptian Mining

Source: Mining.com

Despite its history of gold extraction that traces back millennia, a combination of onerous royalty laws and lack of technological sophistication has rendered the Egyptian mining industry largely dormant for much of the 20th century. We recently reported on the possible rebirth of gold mining projects in Egypt, and otherwise obscure miner Alexander Nubia (AAN) is back in the news for its extensive exploration projects in the Egyptian desert.

With the company's plans to open a mine in the country by 2019 beginning to culminate, the floodgates may soon open on what could be a lucrative endeavor. At present, Egypt has just one active mine, Sukari, operated by the Canadian company Centamin (CEE, CEY). Although the mine does produce about 440,000 oz of gold per year, the Egyptian government takes half of the profits—far above the typical royalty rate. Yet expansion by Alexander Nubia could provide some fresh competition for what are believed to be mineral deposits worth "hundreds of billions of dollars."

 

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.

About the Author

Everett Millman

Everett Millman

Analyst, Commodities and Finance
Managing Editor

Everett has been the head content writer and market analyst at Gainesville Coins since 2013. He has a background in History and is deeply interested in how gold and silver have historically fit into the financial system.

In addition to blogging, Everett's work has been featured in CoinWeek, Advisor Perspectives, Wealth Management, Activist Post, and has been referenced by the Washington Post.

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