Gold, as measured by the SPDR Gold Trust (ETF) (NYSEMKT:GLD) is down a remarkable 30% from its 52-week high. However, that performance pales in comparison to the dismal showing of Barrick Gold Corporation (USA) (NYSE:ABX), Newcrest Mining Limited (ASX:NCM), Eldorado Gold Corp (USA) (NYSE:EGO), Compania de Minas Buenaventura SA (ADR) (NYSE:BVN) and AngloGold Ashanti Limited (ADR) (NYSE:AU), each down at least 60%!
Beware the Elevated Dividend Yields
Unlike GLD, four of these five majors pay stock dividends. Barrick Gold Corporation (USA) (NYSE:ABX) has the highest yield at 5.5%, and Compania de Minas Buenaventura SA (ADR) (NYSE:BVN) yields 3.9%. The other two yield 1.5%-2.5%. Of course, Foolish investors should question how safe these dividends are. Barrick Gold Corporation (USA) (NYSE:ABX)’s dividend appears most at risk. Last Friday the company announced a $5 billion write-down of a massive gold/silver project in Chile. Worse, in the same press release, Barrick Gold Corporation (USA) (NYSE:ABX) hinted that other material write-downs are likely.
Barrick Gold a High-Risk Company With $15 Billion of Debt
Barrick is trading at a price not seen since the year 2000. Is Barrick a buy? Probably not. The company has $15 billion of debt and its book value is sinking like a stone. Debtholders are not happy. Therefore, not only is Barrick Gold Corporation (USA) (NYSE:ABX)’s dividend at risk, but the company may be “encouraged‘ by debtholders to issue new equity capital.
Australian major Newcrest Mining Limited (ASX:NCM) is also suffering from write-down fever. Like Barrick, but a month earlier, Newcrest Mining Limited (ASX:NCM) announced a roughly $5.5 billion write-down. This was not due to a single asset, but to all of Newcrest Mining Limited (ASX:NCM)’s assets. Alarmingly, the gold price is even lower since Newcrest Mining Limited (ASX:NCM)’s announcement. As it stands, the company’s debt/equity ratio is expected to double to 35% at June 30.
Eldorado Gold Corp (USA) (NYSE:EGO) is facing significant opposition to a key project in Greece. Although no meaningful write-down of this asset has been announced, investors should not be surprised if one pops up. This project, at about $1.5 billion, is smaller than Barrick Gold Corporation (USA) (NYSE:ABX)’s problem project, but Eldorado Gold Corp (USA) (NYSE:EGO)’s market cap is also smaller at $4.3 billion. On the positive side, Eldorado Gold Corp (USA) (NYSE:EGO)’s balance sheet is in much better shape than Barrick’s.
Compania de Minas Buenaventura SA, “BVN” is a 44% owner with Newmont Mining (51%) of yet another challenged gold mine development project. Minas Conga is Peru’s largest development stage mining project. One would think that since Compania de Minas Buenaventura SA (ADR) (NYSE:BVN) is a Peruvian company, it would have better luck tackling resource nationalism challenges, but apparently not. Compania de Minas Buenaventura SA (ADR) (NYSE:BVN) is overexposed to its home country of Peru, not a good thing these days.
AngloGold Ashanti Limited (ADR) (NYSE:AU) is facing downgrades from analysts, according this note from Seekingalpha on June 13:
“AngloGold Ashanti is cut to Sell from Hold with a $12.70 price target (down from $20) as part of the firm’s downgrade of an already bearish view on the outlook for gold and silver prices. The firm cites AU’s high all-in cost base and the need to restructure, which may be difficult to achieve with South Africa’s highly unionized labor force.”
Are Any of These Five Beaten Down Majors a Buy?
The majors will be a buy once there’s visibility of an end of write-downs. If the majors can slash costs AND the gold price increases by 15%-20%, that would allow moderate earnings power once again. In the meantime, write-downs, dividend cuts and resource nationalism headlines offer little to be excited about.
The article These 5 Gold Majors Down a Shocking 60%+ originally appeared on Fool.com and is written by Peter Epstein.
Peter Epstein has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Peter is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
