--Clyde Russell is a Reuters market analyst. The views
expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, June 12 While it has been
a dreadful few months for gold bugs, it has been worse for
investors in gold mining companies.
Major gold miners have tended to perform worse than exchange
traded funds not only during the sell-off of the precious metal
since April, but also since the record high reached in September
Newcrest Mining Ltd, Australia's biggest gold
miner, was the latest producer to disappoint investors, issuing
a profit warning and announcing plans to slash up to $6 billion
in asset values, reduce costs and cut planned expansions.
The stock has shed almost 11 percent of its value since the
June 7 statement, adding to losses suffered in recent years.
Newcrest shares fell to A$16.92 ($17.83) during the 2008
global financial crisis, before rallying 155 percent to a high
of A$43.17 in November 2010.
Since then the stock has been pushed lower by 72 percent as
the company battled rising costs and a gold price that has
Investors in the biggest gold ETF, the SPDR Gold Shares
, have fared better, notwithstanding gold's recent woes.
The 2008 recession low for the SPDR was $70, reached on Nov.
12 of that year. The fund then surged 164 percent to reach an
all-time high of $184.58 on Aug. 22, 2011, just before the
record peak for spot gold.
Since then the ETF has declined by 28 percent, with by far
the biggest portion of that coming this year, matching gold's
slump of more than $300 an ounce between January and mid-April.
And the underperformance for gold equities isn't limited to
Newcrest, with the world's biggest producer, Canada's Barrick
Gold Corp, and number three, AngloGold Ashanti
, also struggling.
Barrick, which closed on Tuesday at C$19.99 ($20.39), has
lost 64 percent of its value since its peak of C$55.25 on Dec.
It also underperformed the SPDR's rally from the 2008
crisis, gaining 94 percent from October of that year to the 2010
AngloGold Ashanti nearly matched the post-recession gains,
jumping 156 percent between October 2008 and December 2011. It
has shed 57 percent of its value since then, however.
While all three miners have had to deal with a falling gold
price, they also have been faced with other challenges, some of
their own making, which have negatively influenced investor
Barrick is embroiled in a dispute with the Chilean
government over its massive Pascua-Lama project, having been
ordered to halt work and fined $16 million for environmental
The future of the $8.5 billion project is now in doubt and
it runs the risk of being mothballed as Barrick, in common with
the rest of the industry, seeks to cut capital expenditure.
AngloGold Ashanti faces labour unrest at its South African
mines, with a miner stabbed at its Mponeng mine on April 20,
apparently in a dispute between workers that may be linked to a
wider rivalry between unions.
Union demands for wage hikes of up to 60 percent set the
stage for further disruptions and unrest at South African mines,
which may add to the risk discount in AngloGold Ashanti's share
What these three companies collectively show is that it
appears inherently more risky and less rewarding investing in
gold equities than in the actual metal.
This stands in contrast to other commodities, crude oil for
Exxon Mobil, the largest multi-national oil company,
gained 68 percent between its post-2008 low of $56.57 reached in
July 2010 to its high of $93.48 on Dec. 18 last year.
It has since declined 3.2 percent to close on June 11 at
The U.S. Oil Fund, the largest ETF tracking West Texas
Intermediate futures, did perform better during the upswing,
gaining 97 percent between its post-2008 low in February 2009
and its peak in April 2011.
However, since then it has lost 25 percent of its value.
The above analysis does exclude the impact of dividends,
which will boost the total return offered by equities but aren't
a feature for commodity ETFs.
However, dividends paid by gold miners tend to be low, with
Newcrest handing out 35 Australian cents in the 2012 financial
year and Barrick 75 Canadian cents.
This isn't enough to offset the underperformance of the
share price vis-à-vis the gold ETFs.
It's clear that gold miners still have some way to go to
convince investors that buying shares in a producer is a better
investment than buying the physical metal.