Mining Shares Soar This Week On Coattails Of Stronger Precious Metals

February 8, 2016

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(Kitco News) – Precious metals soared during the first four days of this week, with share prices of producers rising even more, as markets further scaled back expectations for interest-rate hikes by the U.S. Federal Reserve.

There is an old market adage that gold stocks tend to either rise or fall faster than gold due to investor leverage, and that was certainly the case for the period from Monday through Thursday.

As of Thursday’s close, Comex April gold futures were at $1,157.50 an ounce, a gain of $41.10, or 3.7%, for the week to date. Comex March silver was up 60.7 cents, or 4.3%, for the first four days of the week at $14.85.

During that same time span, the NYSE Arca Gold Bugs index (HUI) was up 19.071 points, or 15.8%, to 139.8696. The Market Vectors Gold Miners exchange-traded fund (GDX), which consists of stocks of gold-mining companies, rose $1.94, or 13.7% to $16.15.

Companies that have a primary focus in base metals also fared well, helped when Comex March copper rose by 6.45 cents, or 3.1%, to $2.1315 a pound.

In fact, one of the biggest gainers during the first four days of the week was diversified miner First Quantum Minerals Ltd. (TSX: FM), which rose $1.02, or 34%. The company produces copper, gold and other metals. First Quantum reported that fourth-quarter and 2015 preliminary metals output was within guidance. Full-year 2015 copper output was 428,229 tonnes, up slightly from 427,655 in 2014. Full-year gold output of 223,914 ounces was down modestly from 229,813 in 2014. The company has gotten some favorable analysts comments lately.

Shares of First Quantum Minerals

Shares of First Quantum Minerals

As gold rallied, shares of Yamana Gold Inc. (NYSE: AUY) jumped ahead by 50 cents, or 29%.

Harmony Gold Mining Ltd. (NYSE: HMY) continued its heady ascent from recent months, adding another 45 cents, or 25%. South African producers such as Harmony have tended to outperform in the precious-metals space due to weakness in the South African rand, which means higher revenues for these companies in their own currency, thereby increasing profitability. In fact, Harmony said this week, it was looking to make acquisitions and repay debt after higher profits in the most recent quarter. Citi Research said “the stars have been aligning” for Harmony, but nevertheless downgraded the company to “neutral” because its shares have already skyrocketed by some 250% over the past three months.

Freeport McMoRan Inc. (NYSE: FCX) – generally thought of as the world’s largest publicly-traded copper company, but also a major gold producer – climbed $1.12, or 24%. Last week, the company reported a fourth-quarter net loss of $4.1 billion that was largely due to an impairment charge. Company officials said they are trying to reduce their debt load, looking at asset sales and joint ventures. Meanwhile, Freeport’s export permit for its giant Grasberg mine in Indonesia has expired in a dispute over building a new smelter, although a government official Friday expressed confidence that the permit would be renewed next week. “Freeport remains a buy for patient investors who can afford some risk,” said Adrian Day, president and chief executive officer of Adrian Day Asset Management.

Kinross Gold Corp. (NYSE: KGC) added 39 cents, or 24%.

Royal Gold, Inc. (NASDAQ: RGLD) benefitted not only from rising metals prices, but also an earnings report showing the company flipped to a net profit in its most recent quarter as revenues hit a record. Its shares gained $6.15, or 21%. The company said revenue of $98.1 million was up 60% from $61.3 million in the same quarter a year ago. Net income was $15.1 million, or 23 cents per share, compared to a net loss of $6.5 million, or 10 cents, the prior-year quarter.

Eldorado Gold Corp. (NYSE: EGO) gained 46 cents, or 21%. For some time now, the company has been in a fight with the Greek government over permitting issues, winning an appeal to the country’s top administrative court, but last month also reported a potential impairment charge on its Greek assets. Nevertheless, the company – which also has mining, development and exploration operations in Turkey, China, Romania and Brazil – last week reported production of 723,532 ounces in 2015, exceeding guidance of 640,000 to 700,000 ounces.

Iamgold (NYSE: IAG) added 29 cents, or 20%. Shares appeared to rise with gold itself, with the only news from the company being an announcement that it signed agreements with a banking syndicate to refinance an expiring unsecured revolving credit facility with a $250 million facility. “We do not expect to draw upon the facility in the foreseeable future,” said Carol Banducci, chief financial officer.

One of the few companies on the defensive was Primero Mining Corp. (NYSE: PPP), which lost 61 cents, or 24%. Officials announced that the company received a legal claim from Mexican tax authorities that would change the silver-pricing mechanism on which the company is taxed. “In the event that a new tax regime is instituted whereby Primero must pay tax based on the spot price of silver, not the realized price (that takes into consideration a streaming agreement), we estimate that the incremental tax liability could be ~$20-40M per year, depending on the silver price at the time,” said BMO Capital Markets.  However, BMO said the claim may be a starting point for negotiations. “This claim is without precedent, and while the market may impute the worst possible scenario, we are optimistic for a more agreeable resolution,” BMO added. Meanwhile, Primero officials said the company believes it has filed its tax returns, and paid all taxes, “in compliance with Mexican tax laws.”

By Allen Sykora of Kitco News; asykora@kitco.com

Category: Gold