Shortly speaking, with some generalization, IAG is better than EGO in case of strong increase in gold price. Needless to say both stocks would benefit greatly in this case.
On the contrary, EGO is better in case of less positive scenario. In other words, EGO is better protected on downside; IAG has greater upside. Please note that “neutral” scenario, i.e. gold price is level, would be somewhat better for EGO.
The answer is No. management doesn’t try intentionally to drive stock down. It can be said that operational misstep in Westwood cost couple bucks (very approximate number) to share price, but obviously enough it wasn’t intentional.
The trend illustrated by your numbers has different nature. Bear market in gold started a year ago and the longer it continues the higher is downward pressure on these equities. It can be said that all prices named in your message (1274, 1293 and 1303) are too low. They all belong to bear market. Gold miners continue enduring difficult market conditions.
Shortly speaking, 1300s is too low number for this sector to continue moving on the same way as before. If gold price stays at these levels for long (not too long, because one year is already elapsed) then gold production should drop down in substantial ways. So far, companies mostly increase production despite unfavorable financials. Sooner or later, these financials will bring them down (again if gold price doesn’t exit bear market waters).
In other words, investment in this sector still carries tangible risk of either buying something under constant pressure (aka dead money) or, God forbid, buying something outright ready for bankruptcy. It is good enough that IAG is not in the latter category. However, downward pressure is quite palpable. It causes most investors to avoid this sector and it adds to the pressure.
Regarding relative underperformance (comparing IAG to other miners), if/when Westwood finally comes on-line and shows good performance then this underperformance should disappear. It might happen, in case of real good performance there, IAG could start outperforming other gold miners. Again, it is all about relative/comparisons.
Take it easy.
Gold should not be treated as a major investment, especially talking about gold mining equities. It is a hedge; it make sense to have small position (definitely small in bear market) in gold (properly positioned!), just in case of sudden burst in gold price. It happens sometimes and, alas, timing is not predictable. Gold is the most unpredictable investment vehicle. It makes very questionable to invest large parts of portfolio here (mining shares), even in favorable market conditions. Keep it modest and take profits as soon as they appear (it doesn’t always happen).
Regarding specific investment situation with someone’s portfolio, it is always individual. We are all adults and invest own money. However, it makes sense to be aware of investment problems in gold when the latter goes up and sell in time, even if people around shout something optimistic. On the contrary, when gold goes down then selling could be misplaced. Wait for better exit point.
GLD had option expiration today. It creates volatility; it creates chance of some change in short-term trade dynamics. Anyway, market situations should be analyzed quietly. Successful stock investment is a slow and tedious process. It requires order and method, and lot of patience.
Cutting $100M on costs does not mean that company has this cash amount ready to spend on something else. In present environment this cost cutting (saving) means that company loses less money (less by $100M) a year than it could lose without these cost saving measures. In other words, there is still nothing to distribute from cost saving process, except losses (smaller, but still losses).
Instituting buyback now would be very questionable. It would mean a bet on quick sector turnaround. It is possible that this buyback could provide some short-term help to present shareholders. Talking in more straight way, it could provide opportunity to cut losses and run away. It would be dangerous to stay in the stock later in case buyback is implemented while quick sector doesn’t materialize.
it would be fair to add here that company used proceeds from selling mining assets in Ghana to buy Trelawnee; i.e. it sold things for cash and used this cash to buy something else.
Actually, I was more interested in getting hedging examples.
Regarding cash burn, I cannot get the number right away and so I trust yours. $600M is a big nimber; please, see the explanation in the last paragraph. Please also note that 2014 capex is substantially lower than it was in 2013; Essakane construction has been finished in December. IAG had chance to get break-even in cash flow in first half of 2014, but Westwood flop changed it. Now it is postponed to the end of 2014.
Also, company debt is relatively long-term. If I remember correctly it is due in 2020 (you can get more accurate info in this regard on financial web sites, e.g. reuters). Yes, if low gold price stays around until 2020 then this company will be likely in trouble. I would venture say that every gold miner would be in big trouble in this scenario, including those definitely dying long before 2020.
In other words, IAG is not unique in many respects; it behaves similarly to other gold companies. It has also some distinctions; one of them came in unfortunate way: company embarked on big expansion program in 2013 (re: spending) and it coincided with big drop in gold price. That’s the reason why stock price behaved awfully last year, worse than many peers. It is too bad that so many people on this board cannot or refuse recognize this notion and blame Letwin instead.
Fortunately, IAG is not in position of serious worries about "prolong the life of the company".
Btw, I didn't see many examples of gold miners hedging production now. Please, share if you know such examples.
Formal option contracts can present just a tip of the mount; it could be countless derivatives (swaps) behind any contract. These derivatives can involve stocks not even eligible, formally, for option trading. The whole market moves.
Anyway, take simple note: 3rd Fridays bring higher volumes and volatility. Don’t get surprised and try to use it for own gains.
In my opinion, this was relatively quiet op-ex day. Certainly, it depends on which stocks you monitor. These days often involve really big swings in stock prices during the day, especially in last minutes. Today, volume was higher but stock prices didn’t make big moves.
Anyway, it makes sense to mark this day (3rd Friday) on calendar and try to have extra time dedicated to stock trading for this day, every month. The whole expiration week usually presents increased number of opportunities; especially closer to the end of week.
It seems that now market enters quiet period till the start of next earning season that will coincide btw with the next op-ex day in April.
Please. This is option expiration day. it repeats every month and it causes higher volumes and wild price swings for many stocks.
It also causes the same message board posts (buyout, leaks, conspiracies, etc). Hopefully, they come from different guys every new month; people should learn and start using market calendar.
Every business has some elasticity, i.e. companies can cut costs temporarily waiting for better pricing. For example, gold miners can cut on exploration or stripping/digging. It can help for couple years, though it cannot continue indefinitely.
“Safer” means stronger balance sheet, less debt, more cash. It is all public information. For example, AGI, EGO or PAAS have balance sheet stronger than IAG at the moment.
Please note that safety means protection on downside and sometimes it works against upward potential, i.e. safer stocks have richer valuation and so less room to rise in case of sudden sector recovery. It should be also noted that IAG is not the riskiest gold stock. It still has niobium that provides some brake on the way down.
However, safety becomes very important in bear market especially when it lasts long. This bear continues for almost a year already and it takes toll, i.e. all miners suffer and their balance sheets become more fragile. It assumes more selective approach, i.e. investors play with higher risk and so they could use double caution.
PS: also, I disagree with your points regarding general market (re: gambling), but it is too big topic to squeeze into this message.
Actually, niobium is the only bright spot here, taking into account current situation in gold lands. It is simple enough: niobium mine is really profitable; while many gold mines are not. It is a positive distinction at the moment; most other factors go against investment here; some gold stocks look safer than IAG now, relatively speaking.
As long as niobium producers (only 3 companies in the world) play it smart maintaining producing discipline, niobium will stay a reliable source of income and “Chinese slowdown” is not a real danger. This slowdown is mostly tabloid phenomenon; world continues to expand. The real danger would be reckless niobium expansion started by any of these “big three” that could kill this source.
This rationale sounds very reasonable. It is true that mining gold becomes more expensive every year and many costs are beyond company control. The only addition would be that it is the same for all gold miners. Why do you blame Letwin for this?
Instead of blaming management, one could accept following market truth: gold investment is risky and goes against many odds. By and large, gold is good as a hedge or as a fast trading vehicle; not as the major part of portfolio. Making gold investment larger, beyond “hedge” size, borders on gambling. It can work sometimes; some guys can even make fast bucks in a casino. However, casino trips are never considered as a part of sound investment strategy.
Bobhals, I didn’t say that Putin will conquer the world. My message said that he wants (!) to conquer the world. It is not the same.
By the way, megalomania is a common attitude among dictators; nothing new here.
PS: I apologize for taking board space with “political messages”. Actually, my initial message was more about gold, but subsequent replies caused me to delve in political matters. Sorry about this.
sakhaneft, first of all, U.S. didn’t grab any land recently. It did overthrow few dictatorships and then it spent lot of money and many lives trying to help other people to protect their land. One may question wisdom of this policy; it wasn’t the wisest in too many aspects. However, it is far cry from Russian policies; trivial predatory attack and land grab against neighbor when the latter shows weakness. By the way, this behavior is the most consistent feature shown in Russian history.
It seems to me, Sakhaneft, that you rush to conclusion. This phase of the crisis is over but the whole process still continues and will accelerate likely. The next crisis comes when Russia actually annexes Crimea; can come in couple weeks or even earlier. One may expect gold to be pushed up again by this event.
Also, it would be naïve to expect Putin to stop on Crimea. This guy won’t stop until either he conquers the world or the world wakes up and hit him back. Either way, gold price is definitely affected by geopolitical events. It is not transparently simple link, but still it is not too complicated either.
It was good enough, imho. At least, management articulated clearly that 2014 is a transitional year in tough competitive environment. It should save folks from heavy duty to moan and call management names after every earning report for next 2-3 quarters; you are already warned.
Cursory glance over company balance sheet should convince that liquidity is not an issue here, not for 2014 at least. If management forecast for serious improvements in 2015-16 comes true than buying this stock is not a bad idea, imho. By the way, current political situation in Europe could seriously increase interest to LNG applications where company is a market leader. It could promote this new technology to commercial levels even sooner that company anticipates.
In market perspective, low P/B ratio could bolster stock price during low or no earning period this year. It is difficult enough to find a technology company with real commercial operations and trading with discount to book.
Hopefully, we (SCCO holders) have to deal with short-term market phenomenon. Also, it should be noted that Chinese numbers cover period including Chinese new year. Anyway, SCCO is not just a miner completely depending on China.
China doesn’t eat copper. It buys copper ore (concentrate) all over the world (except few spots where copper refineries still allowed to work). Chinese refineries process ores to copper metal and then this metal is used in zillion products that exported to U.S., Europe, etc.
If the process above is broken, let’s imagine the worst that could happen with “Chinese growth”, then the whole world will be left without copper products and this situation could produce huge benefits for remaining copper (metal) producers. Hint: SCCO produces own copper; it doesn’t export ore to China.
In other words, this company is fundamentally safe. It will continue produce even if all Chinese refineries go bankrupt as was amazingly deduced from single bankruptcy of one Chinese-based solar-equipment developer.
PS: I apologize for refreshing basic ideas about this stock. Also, as it is already mentioned in multiple messages around this board, do not take this message as any kind of recommendation.
Bad earnings are already in bag; they were known actually since last earning conference call. Also, market is intelligent enough to see that good earnings are never reported on Friday.
Going forward, it all depends on forward guidance that will be supplied tomorrow. It will be much more important than formal earning number