Thursday, 24 November 2011

Canadian gold and silver miner performance

Valuation data for a representative list of Canadian gold and silver miners and explorers are maintained on the Gold Miner Pulse site (GMP). On the dedicated ‘Gold Miner Pulse’ page of this blog the performance of the HUI unhedged gold miners index is shown relative to gold bullion. It doesn't look nice: nor over the short term nor over two years, even since the aftermath of the secular financial crisis. In another graph the performance disparity is illustrated among the gold and silver miners of the GMP database. Some lucky picks have been outperforming silver or gold by an impressive margin. Few laggards have lost tremendously despite gold and silver up considerably over the year. A disappointing majority of 61 precious metal miners are in the red since Nov 19 last year. Little individual miner information can be conveyed in one such graph. Therefore, I 'm going into detail to give an idea which miners were good picks and what are the investor's nightmares.

A first analysis in this sense was made in August (See: Stock picking matters).
Over three months later, the performance disparity has only grown, especially near the bottom of the list, though there have been few shifts among miners and explorers in the bottom quintile.

Overall miners have been largely underperforming the precious metals during most of the period observed. If I were to declare a year ago that we would have $1700 gold by November 2011 (up nearly 30%) yet face miners losing about 10%, I would have been laughed at. Unfortunately that's how things turned out.
There are 100 miners in the Canadian Gold and Silver Mining database: 77 gold miners and 34 silver miners, with eleven dual producers listed both on the gold and silver lists. I have sorted the miners according to performance (since Nov 19 - the inception of the GMP-miners indices) and divided the list into quintiles: five times 20 miners. Below you find the graphs:

Investor's nightmares
An investor having a disproportionate capital allocation to miners in this quintile, should probably give up investing in individual stocks. As a lousy stock picker, you're certainly better off with any of the miner ETF's and - considering miner underperformance - even better with bullion or bullion ETF's.
(click to enlarge - Symbols used are the TSX / TSX Venture quotes in CAD)
It's not that these stocks are necessarily all-time laggards: some used to have an excellent track record, others are the turnaround stories of 2010 and investors still owning them missed a lifetime opportunity to realize profits: think of Great Basin Gold. All but the top three are down over 50%. At the bottom, Crazy Horse Resources (CZH) is slashed in six, down 83.3%! There are no gold mining majors on this list.

Underperformers
The underperformers on our list lost between 27% and 45% over twelve months. What was observed for the investor's nightmares counts to a lesser degree also for the underperformers. Agnico Eagle (AEM) suffered after having to close down a mine because of rock instability. This stock is down nearly 45% last year. Among the underperformers we find most major silver miners: Hecla mining (HL), Pan American Silver (PAA) and Silver Standard (SSO) used to have a decent track record. Silvercorp (SVM) still hasn’t fully recovered after being shorted heavily and bashed with fraud allegations, later proven false.
(click to enlarge - Symbols used are the TSX / TSX Venture quotes in CAD)
Considering a 30% rise of the silver price over last 12 months (despite repeated sell-offs), finding many major silver miners in this underperformers quintile is very disappointing.

The midrange
Owning miners in the midrange quintile is nothing to be ashamed of. Unfortunately market conditions have been so harsh that, even in spite of rising precious metal prices, all miners in this range are at a loss as compared to last November.
(click to enlarge - Symbols used are the TSX / TSX Venture quotes in CAD)
A major miner in this range is Kinross (K). MAG silver, one of the more promising silver resource developers, is near the top of this quintile in the good company of a few emerging or near-future gold producers: Detour Gold (DGC) and Gabriel Resources (GBU).

The subtop 
If your major positions are in this range, you're probably an above average stock picker.
(click to enlarge - Symbols used are the TSX / TSX Venture quotes in CAD)
Despite this, Barrick (ABX) at the bottom in this graph still has incurred a small loss over the period observed. A few more of the better majors are in this range: turn-around story Coeur d'Alène (CDM), Eldorado Gold (ELD) and Goldcorp (G). New Gold (NGD) is a well known mid-tier producer. The quintile is topped by Rye Patch Gold (RPM) , a promising gold explorer-developer and by Great Panther Resources (GPR), one of the better silver juniors.

The top league
Having chosen miners among these has been the only way to outperform precious metals. And yet, being up there is no guarantee for the future.
(click to enlarge - Symbols used are the TSX / TSX Venture quotes)
At the bottom of this top league is Yamana Gold (YRI), the only major gold miner in this segment. Aurico (AUQ - formerly Gammon Gold) is a well known mid-tier gold producer. First Majestic Silver (FR), Endeavour Silver (EDR) are probably the widest known silver miners in this top segment. Revett Minerals (RVM) is an emerging silver/copper producer. Most others are explorers, developers and small junior miners. Leading the top league are three explorer-developers, having more than doubled over twelve months. However their outperformance is less spectacular than what it was like during summer: even among the top league explorers, the mining slump deflated profits.

  1. Wildcat Silver Corp. (WS)  +239%
  2. NGEx Resources Inc. (NGQ)  +169%
  3. Treasury Metals Inc. (TML)  +117%
With a large allocation to miners of this top league segment in your portfolio, you're among the elite stock pickers. Congrats.

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