Unfortunately for shareholders of gold mining giant Newcrest Mining Limited (ASX: NCM) its shares have once again dropped lower today. At the time of writing they are down around 1% to $18.69.
This brings the gold, silver, and copper miner’s share price decline to a disappointing 21% in the last 30 days. Not a great end to an otherwise fantastic year for the company’s shareholders, which has seen its share price rise by 44%.
The catalyst to this increase has been a sharp rise in the gold price. In the last quarter the average realised gold price Newcrest received was US$1,328 an ounce.
With its All-In Sustaining Cost (AISC) of US$790 an ounce, it enjoyed an AISC margin of US$538 an ounce. A massive 33% higher than the prior corresponding period margin of US$404 per ounce.
Since then though the gold price has given back a lot of its gains and currently fetches just US$1,170 an ounce.
Should the gold price continue its decline and Newcrest not improve its AISC, I believe there is a danger of its margin falling below last year’s level. If this proves to be the case then unfortunately I expect to see more selling pressure on its shares.
The same is true for its peers Resolute Mining Limited (ASX: RSG), St Barbara Ltd (ASX: SBM), and Northern Star Resources Ltd (ASX: NST). Whilst each of these operates incredibly efficiently, a significant drop in the gold price would put an end to bumper earnings growth very quickly.
Ultimately it will all come down to where the gold price goes next. I’m bearish on gold as I believe that we will see at least three rate rises in the United States in 2017 on top of one next week. This should strengthen the U.S. dollar considerably, weaken the appeal of gold for investors, and drive its price lower. But if you’re bullish on gold then Newcrest would be one of the better options out there for investors.
Overall I would encourage investors to take profit in the gold miners and reinvest elsewhere in the market.
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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