Kinross Chairman: Gold Crash Crushing Mining Stocks

April 12, 2013 at 17:15


Robert Buchan is a well-known gold miner who founded Kinross Gold, one of the world’s most established gold mining companies. After leaving Kinross, he founded Allied Nevada in 2007 around a Nevada gold mine, just as the price for gold started to soar. He eventually took a back seat, becoming executive chairman and handing over day-to-day operations to Scott Caldwell.

In recent months the company has had some operational set-backs at its Nevada mine, but the real problem now for Allied Nevada is the crashing price of gold. Buchan pushed Caldwell aside at the end of March and took over the chief executive position of Allied Nevada, but that has not stopped Allied Nevada’s stock from sinking. The stock is down 66% since mid-October and down 17% in April alone.

For years mining companies rode the rising price of gold to new riches. They reopened mothballed mines and got financing for daring new operations. Big mining companies grew bolder and new smaller outfits were started up. Now the question is, has the gold mining party come to an end with the weakening in the price of gold?

The price of gold crossed the $1,900 mark per ounce in 2011, fueled by fears in the financial markets and the general belief that gold was a safe haven. Even as recently as October, gold was changing hands for $1,754 per ounce. Since then, however, the price of gold has fallen hard, weakening dramatically in recent weeks. This week Goldman Sachs reduced its forecast for the price of gold at the end of 2013 to $1,450 from $1,600. George Soros, the billionaire macro-investing genius, recently suggested that gold’s safe haven status has been broken. The gold price continued to lose its luster on Friday and the yellow metal is now trading hands for $1,511 per ounce.

Few gold miners have been spared. Shares of big mining companies like Newmont Mining and Barrick Gold, down 17% and 30% respectively in 2013, are getting hit hard as the market takes a less sympathetic view of any operational hurdles they are facing. Barrick’s shares fell another 7% in Friday morning trading.

At the same time, speculative small mining companies working on near-impossible projects that were viewed favorably amid soaring gold prices are getting reevaluated in the markets. Shares of Novagold, for example, tumbled by more than 9% in Friday morning trading and are now down 57% in the last year. The company has been trying to develop a long-shot gold mine in Alaska for years.

Some big shot investors are getting caught in the storm. New York billionaire Thomas Kaplan is chairman of Novagold and has in recent years been a big investor in gold and gold mining stocks. Then there’s John Paulson, the New York hedge fund manager who made a historic trade betting against subprime mortgages, but has floundered in recent years. He has also bet big on gold and gold mining stocks, a move that has made the start of 2013 another difficult stretch for him.