Investors across the world seem to be looking for excuses to exit listed gold stocks, as seen in Thursday's 10% declines in prices for global Tier II names Agnico-Eagle and Iamgold, upon the former's warning that its costs could rise next year; rise further than previously indicated, that is. But overall, the atmosphere around listed gold stocks is gloomy; seen as a global grouping, the average gold stock has now been marked down to prices available in May this year.
For now, at least, the familiar daily evangelical headlines pointing the inescapable way to dollar gold bullion prices going up in a straight line are no longer making much of an impression on investors in listed gold equities. On the contrary, such headlines can now be read as contrarian, if the negative momentum in gold equity prices is applied as a guide.
Listed gold stock prices most recently peaked out during September and October, and after declining staged a wimpy rally when dollar gold bullion made record levels early in December. For long haul investors, gold equities are truly in the doldrums.
Looking at global Tier I gold diggers - representative groups which have mines of various ages - Newmont is currently priced at US$47.63 a share, a level first recorded in the latter parts of 2003. A similar profile is produced by the NYSE pricing for AngloGold Ashanti. Kinross is now trading at levels it first attained in the latter parts of 2007, as is Barrick, the world's biggest gold miner by value and output. Goldcorp, a comparatively new name, is trading around levels first notched up during a spike in May 2006.
Leaving aside the issue of forecasting the gold bullion price - forever a mug's game - there may be increasing concerns that gold miners are simply not producing cash in line with other performance metrics generally presented to investors. Thursday's blow off in the Agnico Eagle stock price was associated with technical presentations given by the company, which included information that while production would roughly double in 2010 to about 1.05m ounces, costs could rise to nearly USD 400/oz. Agnico Eagle's cash costs have risen from USD 162/0z to an estimated USD 340/oz for 2009.
All of these numbers are impressive, given the level of gold bullion prices, but the insistence of gold companies blasting out cash costs in a vacuum may be wearing thin. Reference Agnico Eagle's financial statements and these will show that since 1 January 2007, the group has produced cumulative negative free cash flow of USD 1.5bn, computed by aggregating operating cash flow and cash spent on capital expenditure.
The deficits have been funded by a combination of rights issues, raising just over USD 600m over the period, and debt raised over the period, of close to USD 700m. Net cash has fallen from USD 315m at the end of 2007 to a negative USD 446m on 30 September 2009. It has been clear for many months that Agnico Eagle's balance sheet is stretched; yesterday a number of analysts made the amazing observation that the company may have to (once again) raise some fresh equity.
