Gold Stocks Today: Gold Mining Stock Prices

Operating leverage: why miners swing harder than gold

Gold mining stocks move more than gold because a miner’s profit per ounce is the gold price minus a cost base that barely changes when gold moves. That gap, called operating leverage, is the key to reading any gold stock price.

1. Start with the miner’s all-in sustaining cost per ounce; in the example it is $1,400.
2. Subtract it from the gold price to get the margin on each ounce sold.
3. Move gold 10% and recompute. The margin moves about 33% because the cost did not change.
4. The thinner the starting margin, the bigger the percentage swing, which is why high-cost producers react most violently.

All-in sustaining cost

All-in sustaining cost (AISC) is a measure the World Gold Council introduced in 2013 to give investors a fuller picture than the older cash-cost figure. It adds sustaining capital spending, exploration at existing mines, corporate overhead and reclamation to direct mining costs. It is a non-GAAP measure, and companies calculate it slightly differently, so compare it within one company over time more confidently than across companies.

Leverage cuts both ways

When gold fell from 2011 to 2015, mining shares fell far harder than the metal, and the industry booked large asset write-downs in 2013 on projects that no longer made sense at lower prices. Operating leverage is a feature of the business, not a bet that only pays off in rising markets.

How streaming and royalty companies make money

Wheaton Precious Metals and Franco-Nevada do not run mines. They finance them in exchange for a share of future output or revenue, which gives them exposure to gold with a different cost structure from producers.

How a stream works

1. The streaming company pays a mine developer a large upfront deposit, often to help fund construction.
2. In return it gets the right to buy a fixed percentage of the mine’s future gold or silver output for the life of the agreement.
3. It pays a low, contractually fixed price per ounce on delivery, or a set percentage of the spot price.
4. It sells that metal at the market price and keeps the difference.

Streams are often written on by-product metal, such as silver or gold from a mine run mainly for copper, which lets the operator raise money without diluting its shareholders.

How a royalty works

A royalty entitles the holder to a percentage of a mine’s production or revenue. The common form is a net smelter return (NSR) royalty, a percentage of revenue after refining and transport costs. The royalty holder pays nothing toward operating or expansion costs. Franco-Nevada built its business on royalties and also holds streams.

What royalty and stream holders cannot control

• Mine plans, production rates and closures are decided by the operator.
• Political and permitting risk in the mine’s country falls on them as well.
• They do not benefit when an operator cuts costs, and they are not hurt when costs rise, unless the mine becomes uneconomic.
• Portfolios spread across many mines reduce, but do not remove, the risk of any single asset.

Gold stock symbols and what each one tracks

People searching for a “gold stock symbol” are often looking for a ticker that simply follows gold. There is no stock for the metal itself: the nearest things are physically backed ETFs such as GLD and COMEX futures under the symbol GC. Mining tickers track companies.

Barrick, the other large producer in the live table above, runs mines across North and South America, Africa and Asia.

GDX versus GDXJ

GDX is dominated by the biggest producers, so it behaves like a leveraged version of large-cap mining. GDXJ holds smaller companies, many with one or two mines or none yet in production. It tends to be more volatile, and single-mine setbacks weigh more heavily on it. Neither fund holds gold; both hold shares.

The XAU index

The Philadelphia Gold and Silver Index, ticker XAU, is another basket of mining shares. It shares its code with gold’s currency code, which causes confusion on the XAU/USD page and elsewhere.

What moves a gold miner besides the gold price

Two miners can react in opposite directions to the same gold move. Company-level factors decide how much of the metal’s gain reaches shareholders.

• Cost inflation: diesel, electricity, labor, explosives and processing chemicals can raise AISC faster than gold rises.
• Currency: many miners pay costs in Canadian or Australian dollars or other local currencies but sell gold in U.S. dollars, so a weak local currency widens margins.
• Jurisdiction: royalty rates, taxes, permits and, in some countries, the risk of nationalization.
• Reserves and grade: a miner must keep finding ounces to replace what it digs up, and lower grades mean higher costs per ounce.
• By-product credits: copper or silver sold alongside gold lowers the reported cost per gold ounce.
• Hedging, debt and share issuance, which can divert gains away from existing shareholders.

Reading a miner’s quarterly report

Mining results are dense, but a few lines tell most of the story.

1. Ounces produced and sold, compared with the company’s own guidance for the year.
2. AISC per ounce, again against guidance, and the reasons given for any overrun.
3. The realized gold price, which can differ from the average market price because of timing and hedges.
4. Free cash flow after capital spending, which funds dividends, buybacks and debt repayment.
5. Any change in reserves, grade or mine life, usually reported once a year.

Some producers link their dividend to the gold price or to free cash flow, so payouts rise in strong years and shrink in weak ones.

Taxes on mining shares

Mining stocks and miner ETFs are ordinary securities. Long-term gains are taxed at the usual capital gains rates of 0%, 15% or 20%, not the 28% collectibles rate that applies to physically backed gold ETFs; the gold ETF page sets out that comparison. Dividends from Canadian companies can have Canadian tax withheld, generally 15% for U.S. residents under the tax treaty, which may be claimed as a foreign tax credit.

Comparing miners with the metal

A useful habit is to compare a miner’s move with today’s gold price change. A miner that falls on a day gold rises is telling you something about the company.

Over longer periods, the gold price history page shows the metal’s own path, so you can see how much of a stock’s rise came from gold and how much from the business.

For scale, the gold market cap page puts the value of all mined gold in perspective against the size of the mining industry.