Gold and oil stocks plunge: Should you be concerned or start buying?

Wednesday was a pretty average day for investors in some of Australia’s biggest and best mining and energy companies. Following a 2% fall in the gold price, a 1.5% fall in the oil price, and a sharp downgrade in iron ore projections, some big ASX200 stocks weighed down the index.


Gold miner Newcrest Mining Limited (ASX: NCM) plunged 3% to $8.98 and is now down 23% from its July high of $11.50.

Oil and Gas

Oil Search Limited (ASX: OSH) and slightly smaller rival Santos Ltd (ASX: STO) fell over 2% to extend short term falls beyond 15%.

Woodside Petroleum Limited (ASX: WPL) fell 1.5% to $40.25, down from a high of $44 only two months ago.

Iron Ore

Fortescue Metals Group Limited (ASX: FMG) continued its precipitous plunge, down 4.5% to $3.02, remaining ever-so-slightly above the emotionally significant $3 level and down from $5 in just three months.

BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) fell a mere 1.5% but remain well off 12-month lows.

Is it time to buy?

As my colleague eloquently pointed out in an article yesterday, the answer for iron ore miners is probably no. The same philosophy can be applied to both gold miners and energy companies as well.

In the iron ore industry the big players Rio and BHP are fine at the current low prices but smaller, higher cost producers are going to struggle. The same is true in gold and gas. The global oil and gas market is dominated by low-cost producers in the Middle East and Russia, while Australian companies are higher up the cost curve.

Oil Search may be somewhat insulated by its exposure to low-cost projects in PNG, however all three Australian oil and gas majors have significant stakes in expensive current or future Australian projects.

Newcrest is in a similar position. Operational performance has been the major driver for a fall in the share price over the last 2-3 years but the company does not operate the lowest cost mines and has paid a high price for mines in the past, restricting company returns.

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Motley Fool contributor Andrew Mudie owns shares in Fortescue Metals. You can find Andrew on Twitter @andrewmudie

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