Gold equities have climbed an astonishing 1,400% since their 2000 lows while the S&P 500 has declined 11%. However, 2011 has not been a good year for gold stocks. Gold has risen 7% so far in 2011, essentially in line with the S&P 500, but gold equities have not performed well and currently lag behind by about 11%.
During previous periods of market weakness, JPMorgan analyst John Bridges notes that gold equities under-performed gold in both 2000 and 2008 as is now the case.
Bridges recently stated in a research note, “We believe this is highlighting investors’ worries about what happens as QE2 liquidity dries up. It is a well established practice in some gold funds to switch part of the portfolio from equities to metal in times of uncertainty, or after gold has performed.”
In his note, Mr. Bridges named a few companies that, in his opinion, offer significant growth. His list includes Goldcorp (TSX:G), Newmont Mining (NYSE:NEM) and Kinross Gold (TSX:K). All three stocks are up today posting gains of 0.7%, 2.1% and 1.8% respectively in what may prove to be a bounce back day for gold stocks – not to mention equities in general. The world’s financial markets are anticipating that Greek Prime Minister George Papandreou will win a confidence vote which will set the stage for budget cuts and pave the way for a new debt package.
In light of today’s optimism if your gold stock is down you might just blame it on the rain. B2Gold (TSX:BTO) reported today that heavy rains and flooding at their Limon mine in Nicaragua resulted in the shutdown of underground mining operations. And, the company has initiated rescue attempts of a missing worker. The Limon mine has a reported mine life of 3.5 years with projected average annual production of approximately 40,000 ounces of gold with estimated cash production costs of $625 per ounce.
This negative news is on the heels of B2Gold’s recently reported record first quarter. On June 10th, 2011 the company reported that gold revenues increased for a fourth consecutive record hitting record sales of $53.5 million from 38,754 ounces produced. The significant increase in revenue was attributed to higher gold production from the La Libertad mine and also to higher average realized gold prices. The La Libertad mine, also in Nicaragua, commenced commercial production on February 1, 2010. From the first quarter, La Libertad mine accounted for $38.0 million of gold revenue from the sale of 27,549 ounces while $15.5 million was contributed by the Limon mine from the sale of 11,205 ounces.
Shares of B2Gold are down a penny trading at $3.17 a share.