Barrick Gold Corporation (USA) (ABX), Newmont Mining Corp (NEM): Could it be Time to Dump Gold Miners in Favor of These Silver Producers?

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Traditionally, gold is a safe haven asset, or it used to be. Currently, gold is anything but safe. Indeed, the SPDR Gold Trust has a beta of 0.19 indicating that the price of the fund and gold have a positive correlation to the general market. Additionally, the price of gold has hardly been steady in recent times as a combination of Federal Reserve comments and high frequency trading has thrown the price around.

Newmont Mining Corp (NYSE:NEM)

Is it time for gold bugs to give up?

Well it might be, the volatile price of gold would be enough to discourage even the steadiest of investors and the shares of gold miners have been on a steady decline for almost a year now without any signs of staging a turnaround.

Furthermore, these declines could be about to get a lot worse. After the suspension of the development at its Pascua-Lama mine Barrick Gold Corporation (USA) (NYSE:ABX) has been forced to admit that it will have to take a write-down of $5.5 billion on this one mine alone. Moreover, the company still uses a gold price of $1,500 per ounce to value the price of gold in its mines, paving the way for further write-downs and re-valuations – the company’s average cost of production from its Australia Pacific mines is expected to be between $1,200-$1,300 indicating that some of Barrick Gold Corporation (USA) (NYSE:ABX)’ production is already unprofitable.

Perhaps it is time to consider sliver?

Compared to gold silver appears to be relatively stable. Indeed, it would appear that silver miners have been much more sensible with the way that they spend their cash and reinvest their profits over the past few years when the times were good. In particular, Hecla Mining Company (NYSE:HL), personally one of my favourite mining stocks on the market.

You see, during 2011 and 2012 when precious metal prices were high, both Barrick Gold Corporation (USA) (NYSE:ABX) and Hecla Mining Company (NYSE:HL) were pulling in profits, however, closer look at company cash flows reveal a different story.

2011

Barrick Hecla
Net operating Cash Flow $5,260 $70
Net Investing Cash Flow -$12,690 -$80
Issuance of debt/ Stock $6,140 -$3
Net Change in Cash -$1,210 -$17

Figures in $US millions

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