In what has been a rocky year for gold mining stocks and the corresponding exchange traded funds, investors and industry analysts have spent plenty of time mulling at what price for gold does it become painful and unprofitable for miners to pull the yellow metal from the earth.
There is no uniform answer because the miners that reside in ETFs such as the Market Vectors Gold Miners ETF (GDX) have varying points at which they will feel the need to pare production or take other steps if bullion prices continue falling. For example, GDX holding Yamana (AUY) has all in cash costs of $856 an ounce, well below where spot gold currently trades and one of the lowest all-in cash costs among GDX holdings. [Tax-Loss Selling Could Hamper Gold Mining ETFs]
Earlier this year, it was reported that costs for Gold Fields (GFI) are just under $1,300 an ounce while Iamgold (IAG) has costs in the $1,200 to $1,300 per ounce range and Credit Suisse warned that investors should be aware Newmont Mining (NEM) could pare its dividend if gold resides below $1,200 an ounce for too long. [Gold's Cascade Bad for Mining ETFs]
TD Securities attempted to the answer the question “At what price do many miners begin feeling pain?,” concluding “that as a result of the cost reductions to date, producer balance sheets are relatively stable around $1,250/oz but would weaken further on lower gold prices. On the flip side, we expected balance sheets to de-lever at higher gold prices.”
At $1,100 an ounce, companies with the highest forecast 2014 net debt/total capitalization include Barrick (ABX), Newmont, Agnico Eagle (NYSE: AEM and Detour Gold. Those stocks combine for nearly 24% of GDX’s weight.
In a note obtained by Street Insider, TD Securities said its top mining picks are Eldorado (EGO), Goldcorp (GG) B2Gold (BTG), Primero and Silver Wheaton (SLW). Excluding Primero, those stocks combine for about 23% of GDX’s weight. Silver Wheaton commands a 12.1% weight in the Global X Silver Miners ETF (SIL) .
Market Vectors Gold Miners ETF
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.