Gold and related gold mining companies are rebounding from lows reached at the beginning of July. SPDR Gold Shares (GLD) rose 4.51% last week after the Comex Gold rose to $1,375 by the end of the week. It’s impossible to forecast the future price of gold, but one strategy you can use is to look for mining companies that are moving to improve their balance sheets. Companies cutting dividends are supposed to be companies to avoid, but investors might want to take a contrarian view on companies saving their cash. Below are three companies to watch, investors should carefully consider the movement in gold prices.
Comparing gold prices to gold miners
Click on the images below to see prices over time. Sourced from Zacks Investment Research.
Gold miners outperformed the gold shares trust in the last three months. This is not surprising, because concerns of liquidity and quarterly losses had encouraged investors to sell their shares. A rebound in the price of gold alleviated some of those concerns. If gold prices hold at current levels, more mining companies will be operating with comfortable profit margins.
Mining companies that dropped nearly 50% in the past year could provide investors with a strong return. Barrick Gold (ABX) expects cash costs for gold production this fiscal year to be $575 – $615/oz. The miner also produces copper. Last quarter, the company said it expected cash costs for copper production to be $1.95 – $2.15/lb. One negative side to holding the stock is the fact that the dividend was cut to $0.20 per share, but that saves the firm nearly $600 million a year. Barrick has a heavy debt burden, so the dividend cut will alleviate pressure on its balance sheet.
Newmont Mining (NEM) had nearly $1.25 billion in cash at the end of its quarter ending June 30, 2013. The firm pays a dividend of $1.40, which yields 4.32%. Last quarter, Newmont lost $2.1 billion, after accounting for $2.26 billion in write-offs for mines located in Australia. Newmont produced 1.16 million ounces of gold, a 1% decrease from the previous year. The firm will be spending up to $2.4 billion in capital expenditures this year.
Kinross Gold Corp. (KGC) is another gold miner to consider. Hedge fund legend Seth Klarman recently took a small position in Kinross – opening a 2.1 million share position in the second quarter. Meanwhile Kinross suspended paying dividends. This move will save $182 million annually. In the last quarter, Kinross earned $0.10 per share on revenue of $968 million.
Written by Chris Lau, Kapitall contributor. All data sourced from Finviz.
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