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Why the Independence Group NL share price is getting hammered

It certainly has been a great day for shareholders of gold miners such as St Barbara Ltd (ASX: SBM), Newcrest Mining Limited (ASX: NCM), and Northern Star Resources Ltd (ASX: NST). All these shares have rocketed higher following a jump in the gold price this morning.

But spare a thought for shareholders of Independence Group NL (ASX: IGO). Its share price was lower by as much as 8% when it emerged from its trading halt this morning. It has since recovered to be down by just 4% at $3.92, but compared to its peers it has been a truly terrible day.

There are a couple of potential reasons for its decline today. One is likely to be the $250 million institutional placement that was announced on Tuesday priced at a discount of $3.75. This placement is being conducted to strengthen the balance sheet and fund the remaining development capital expenditure for its Nova Project.

The other reason for today’s sell off could be related to the fact that two global investment banking giants have put out notes downgrading its shares following the announcement of the placement. Morgan Stanley and Deutsche Bank are the two investment banks in question, with the latter rating Independence Group as a sell with a $3.20 price target.

Interestingly it’s not the only gold miner to have suffered a downgrade today. A research note from Citi reveals that it has initiated coverage on EVOLUTION FPO (ASX: EVN) with a sell rating and a $2.40 price target. Investors have not paid this downgrade much attention though, with its shares jumping around 5% to $2.84 today.

With the gold miners putting on such incredible gains this year on the back of a rising gold price, I do have concerns that more downgrades could be on the horizon if the gold price drops. For this reason I would limit exposure to these shares and focus on other areas of the market such as healthcare or information technology.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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