(Bloomberg) — The world’s largest gold mining company is at risk of missing out on the metal’s record growth after spending billions to make it the obvious home for bullion-focused investors. ing.
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Despite gold prices hitting new highs almost every day, Newmont’s stock price has fallen about 6% since the beginning of the year through Thursday’s market close, while rival Barrick Gold’s stock has fallen about 2%. did. Shares of both companies rose on Friday as gold prices hit record highs, with Newmont’s biggest gain since February.
The slump in stock prices has upended the industry’s conventional wisdom of producers outperforming their original products, causing confusion for those involved.
“I’ve never seen it dislocated like this,” said Peter Grosskopf, chairman of SCP Resources Finance LP and former chief executive officer of Sprott Inc.
There may be a change in direction. The index of the largest gold producers has risen 28% since March 1. Newmont and Barrick closed higher for more than a week.
Gold has risen about 13% this year, setting a new record of $2,330.50 an ounce on Friday. The index has soared since mid-February amid heightened tensions in the Middle East and Ukraine, and uncertainty surrounding China’s economy and U.S. Federal Reserve policy.
At the beginning of the coronavirus pandemic, producer stocks soared as gold bullion soared amid fears of economic disaster. Mr. Newmont and Mr. Barrick have gone on an acquisition spree in recent years, acquiring smaller companies and outpacing their rivals in size. The logic behind this was clear. As investors became increasingly wary of the sector, companies wanted to provide an outlet for curious gold miners.
Barrick CEO Mark Bristow also earned a GOLD ticker in New York.
But since then, miners have seen their profit margins shrink as inflationary pressures persist, with most companies spending more than expected on labor, equipment and processing.
Barrick, Newmont and Agnico Eagle Mines have struggled, particularly in North America, as worker wages and other cost items have soared in recent years.
Barrick’s Chief Financial Officer Graham Shuttleworth said in the company’s latest earnings call: “There are still some inflationary pressures in these areas, such as cement, lime, explosives and steel, and we are “We are working to bring it down,” he said.
Newmont’s total operating expenses were 43% higher than analysts expected in 2023, according to data compiled by Bloomberg.
The Denver-based company also faces skepticism from shareholders over its $15 billion acquisition of Newcrest Mining Corp. The company expects lower-than-expected gold production this year, which will involve the sale of several mines that Newmont acquired when it acquired Goldcorp in 2019.
“They sold all of Goldcorp’s assets and are now buying a new set of assets,” Grosskopf said. “So investors are really challenging them and asking, ‘How do we know this won’t happen again?'”
If companies can demonstrate cost improvements in their upcoming financial results, they could realign with the spot gold market.
Robert Crayford, who co-manages the CQS Natural Resources Growth & Income Fund and the Golden Prospects Precious Metals Fund, said the rally is a sign that “a lot of these inflationary pressures are starting to ease.” He said that.
“The headwind is starting to turn into a tailwind.”
–With assistance from Thomas Biesheuvel.
(Updates share trends in the 2nd paragraph and gold records in the 6th paragraph.)
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