Monday, 31 August 2015

Elite miners and explorers ... or what's left of them

Since almost five years, I've been monitoring how the precious metal miners and explorers covered in the Gold Miner Pulse database fluctuate up and more often down. From a majority of gains over losses few months after the start in Nov 2010, we have evolved to only five long term gains left.

Most of the blame is due to the sustained slide of precious metals since 2011. Yet even during the first observation year, miners have been unable to catch up with rising PM prices.
We start off at the present (quotes as of August 28) and gradually work our way back to Oct 2012. You obviously notice the gradual attrition of the set of "elite picks' having left some gain since Nov 19, 2010 (for nearly all quotes) or since their IPO (for Pretium Resources).

Click any of the graphs for maximum resolution
Top quintile: the 19 best explorers / miners from the Gold Miner Pulse database, sorted by gain to loss since Nov 2010, quotes as of Aug 28, 2015.
Let's add some more circumstantial data: gold quotes at $1133.8 and silver at $14.60, while the HUI index stands at 116.12 on Aug 28, 2015. The present result is exasperating: not only there are only five gains left, but the losses incurred - even by the better 20% of the miners or explorers keep increasing, with the bottom three now down over 50%.  If this is what happened to the better 20%, you can imagine what the complete performance graph now looks like:

Long term (since Nov 2010) performance of miners and explorers from the GMP database, sorted from loss to gain.
The median loss (observation in the middle) stands at 76.3%: over a quadruple is needed to break even. The average loss is 68.7%: less bad than the median because of the asymmetry of the distribution, slanted towards the few gains left. There are 30 miners or explorers down over 90%, with 14 thereof down over 95%.
For much of the miner bear market I used to compare this type of performance graph to an iceberg, with only its top seventh volume above water.  It has now deteriorated and more resembles a submarine cruising at periscope depth...

Business demography

When evaluating a large set of miners or explorers over a medium or long timeframe we inevitably run into mergers and acquisitions in the better case, delistings and bankruptcies in the worse. A decent overview of these 'demographic events' can be read on the miners' performance page. There equally have been several name changes, often the harbinger of yet another slide.  The above page also contains a full list of TSX or TSX-V quotes with the corresponding explorer/miner names.
We started off with 102 explorers or miners at the first evaluation exercise.  Twenty two of them no longer quote and were taken off the list. The next merger will be Silver Crest, which will be acquired by First Majestic Silver. It has been left on the list so far.  Even though new miners or explorers have been taken on board, their total number gradually decreased to 95 at present.
In the first comparison, 22 miners were assigned to the top quintile (with 20 to the other quintiles).  By now all quintiles are tailored to 19 miners or explorers.

Working our way back along the tracks of the miner bear market

Back a few months to April 2, 2015, with gold at $1202, silver at $16.76 and the the ARCA index of unhedged gold miners (HUI) still at 167.
Top quintile: the 19 best explorers / miners from the Gold Miner Pulse database, sorted by gain to loss since Nov 2010, quotes as of Apr 04, 2015
Back only a few months to April 2, 2015 is enough to see the number of quotes with a positive return increase to 8. Rio Alto was about to be delisted after the acquisition by Tahoe Resources had been approved.  Rio Alto had risen considerably in the months before, making it the only junior miner still doubled from its entry level in Nov 2010.  Several silver miners quote in the top quintile list: Tahoe Resources (THO), Fortuna Silver Mines (FVI), Avino Silver&Gold (ASM) and Silver Crest Mines (SVL) still are in the green.  Down the list you also notice silver mine developer Excellon Resources and Paramount Silver & Gold (since acquired by Coeur d'Alène), First Majestic Silver and ultimately Wildcat Silver (now renamed into AZ mining).  No top quintile miner posts a loss in excess of 50%.  The precious metal bear market has been particularly harsh for silver, with prices now below the cost of production for the majority of silver miners.  The impact has indeed been detrimental.

We now move up to Jan 22, 2015. We have gold at its 2015 high of $1302 and silver at $18.31. Meanwhile the HUI posts at 203, enjoying its last few days above 200.
Top quintile: the 19 best explorers / miners from the Gold Miner Pulse database, sorted by gain to loss since Nov 2010, quotes as of  Jan 22, 2015
There now are 12 of the 19 picks above water, with only one loss barely in excess of 25% among the top quintile list. We experienced the last moment of hope that the precious metal bear market was ultimately coming close.

Fast reverse to July 9 of 2014. The precious metal summer rally started off at what is normally expected to be a seasonally weak period. Gold had rallied to $1327 and silver to $21.1 with the HUI index still way up at 246, well over to twice the current level.
Top quintile: the 19 best explorers / miners from the Gold Miner Pulse database, sorted by gain to loss since Nov 2010, quotes as of  Jul 09, 2014
We now have 14 miners up against 5 down in the top quintile. Meanwhile there are no losses in excess of 25%. You still find some mid-tier gold miners on the list, such as New Gold and Yamana. Meanwhile, First Majestic still is 'above water' and the top quintile list is lead by silver miner Tahoe Resources with a stellar gain of over 180% since Nov 19 of 2010. (Its long term gain now has dwindled to some 20%.)

Returns don't get better in a systematic and monotonous way as we move further into the past. On Feb 4 of 2014, gold stood at $1255 with silver at $19.50, while the HUI gold miners index was quoting 217.5. With all conditions somewhat less favorable, there are 11 explorers of miners in the green, with the bottom 9 still in the red. The top quintile list now has 20 miners/explorers on board.
Top quintile: the 19 best explorers / miners from the Gold Miner Pulse database, sorted by gain to loss since Nov 2010, quotes as of  Feb 04, 2014
Top pick Tahoe Resources barely doubled since inclusion by that time. A few miners have moved up from loss to gain between Feb 04 and July 09 of 2014. Rye Patch Gold at the bottom quotes at a 35% long term loss.

Back to Aug 29, 2013 with gold at $1407 and silver at $23.87, with the HUI at 258. Though the general gold market situation is better than in July the next year, the top quintile doesn't look much better: THO still is on its way up, while the list now is led by NGEx Resources (NGQ), the only pick doubled by that time. There's quite a few losses 9 against 11 long term winners. At the bottom of the top quintile, Aurico quotes at a loss less than 30%.
Top quintile: the 19 best explorers / miners from the Gold Miner Pulse database, sorted by gain to loss since Nov 2010, quotes as of  Aug 29, 2013
The April 2013 gold plunge has been a game changer, driving down miner profitability, thereby aggravating the gold miner bear market and causing several forced mergers, mine closures and a few bankruptcies ever since. On Oct 30 of 2012 (*) gold quoted at $1710 with silver at $31.76 and the HUI index above 490, well over 4 times the current level.

Top quintile: the 19 best explorers / miners from the Gold Miner Pulse database, sorted by gain to loss since Nov 2010, quotes as of  Oct 30, 2012
It comes as little surprise that there are no losses among miners or explorers in the top quintile. Moreover gains extend to 239% for NGEx Resources (NGQ), closely followed by Rio Alto up 225% and Wildcat silver, which also tripled since inclusion. We furthermore find quite a few miners in the top quintile which presently have slid quite far down the list: Yamana (YRI) or Coeur d'Alène (CDM) now both are 'midrange' performers (third quintile), while Sunward Resources slid to an underperformer (4th quintile) by the time it was taken over by Novacopper.  High River Gold (HRG) was acquired by Nord Gold in 2013.
Yet, even the few picks which managed to move up the top quintile list from this graph onwards to the first graph of Aug 28, 2015 shed some of their gains: they only lost much less than their peers...
Check on Pretium Resources (from 5th to 2nd) or MAG silver (from 13th to 5th position) despite giving back some of their gains. The only real success story is Klondex Mines, having moved up from the midrange quintile (quoting at a considerable loss by that time in 2012) to the very top of the first quintile by now.

Klondex Mines (KDX) in CAD
The above graph illustrates the atypical price chart of Klondex mines. From a reference price of C$ 2.33 on Nov 19, 2010, the junior miner initially rallied with the gold bull market, yet lost ground well before gold peaked and was slashed before summer 2012, whereby it ended up in the lower part of the mid-range performers, having lost close to 60%. Whereas the initial April 2013 gold sell-off still forced another pull-back, the stock price later progressively strengthened throughout the miner bear market, with the stepwise rally in 2015 propelling it to the current top performer. Klondex operates the Midas mine in Nevada. Despite the strong USD, a few miners still are making profits mining in the US.

(*) You can find earlier performance analysis in the Blog articles: Stock Picking Matters (Aug 6, 2011) and Canadian Gold and Silver Miner Performance (Nov 24, 2011).
A later miners' performance analysis (Feb 2016) has been added: Canadian gold and silver miner performance: an update

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