A Recovery in Gold and Copper Prices is Great News for These Mining Stocks

Last year was an extremely difficult one for gold miners Freeport-McMoRan Copper & Gold  (NYSE: FCX  ) and Goldcorp (NYSE: GG  ) . That's because the price of gold fell dramatically, which actually just continued a bearish trend for gold over the past few years. It wasn't just gold that fell, however; pain was widespread across the mining industry. Diversified miner Southern Copper (NYSE: SCCO  ) suffered just as much as the gold miners when copper prices fell.

And yet, the price of gold has risen from close to $1,200 per ounce just a few weeks ago to nearly $1,300 per ounce. Other precious metals, such as copper, are showing strength as well. After such a pronounced downturn, precious metals are finally showing some signs of life. If it continues, a sustained rally in gold and copper prices will be a huge benefit for miners, especially for these three since they're keeping production growth intact.

Pricing may turn into a tailwind
As the price of gold rises, the financial position of gold miners improves. Gold is nearing $1,300 per ounce, which would represent a higher level than the average sales price realized by some gold miners last year. For example, Freeport-McMoRan's average realized gold price in 2013 was $1,315 per ounce. Its overall profits fell by 17% last year, so this year will probably see improvement should gold keep heading higher. If gold prices keep rising, the price of gold will turn into a source of strength instead of weakness.

Not only that, but the management teams of all three companies kept production growing steadily last year, even while gold prices fell so sharply. This may have looked foolish at the time, but these companies may have the last laugh if their increased production coincides with a precious metals rally.

Production strategy may pay off
Freeport-McMoRan, Southern Copper, and Goldcorp kept growing production over the past year, even while precious metals prices collapsed. This may have seemed illogical at the time, but if gold prices continue to increase, the strategy will look extremely timely.

Freeport kept production growth steady last year, even in such a difficult environment. Freeport increased copper production by 13% and gold production by 30% in 2013. If a prolonged rally materializes, they will be set up very well in 2014.

Likewise, Southern Copper increased production in recent quarters since it experienced recovery at two of its major mines in Peru. Its total mine production increased 6.5% quarter over quarter. It won't stop there, though. Southern Copper expects to increase copper production by another 5.5% in 2014. Plus, the company sees the upcoming year being a record one for molybdenum production.

Goldcorp not only increased its own gold production by 11% last year, but it unleashed an aggressive acquisition campaign. Goldcorp attempted to buy smaller miner Osisko Mining Corp. (UNKNOWN: OSKFF.DL  ) to demonstrate its long-term bullishness on gold. Goldcorp offered more than $2 billion for Osisko in a hostile takeover bid, which Osisko has resisted to this point.

Goldcorp expects its 2014 gold production to increase 13%-18%, and by 50% over the next two years. Absorbing Osisko's reserves and mines will only add to the company's production capacity going forward. The Malartic mine, the only mine owned by Osisko in operation, is expected to produce 500,000 to 600,000 ounces of gold per year over its 16-year life.

Completing the acquisition would represent a significant increase to Goldcorp's production. Goldcorp produced approximately 2.6 million ounces of gold over the last year, so bringing Osisko's operations on board could further increase production by 20%. As a result, it's clear Goldcorp would benefit hugely from higher prices, thanks to its production profile going forward.

The Foolish bottom line
There's no denying what a poor year 2013 turned into for precious metals miners. As the prices of gold and copper fell, so too did profits across the mining industry. However, conditions in the precious metals market are reversing, and prices are now nearing a point of profitability for Freeport McMoRan, Goldcorp, and Southern Copper.

Plus, these miners bucked conventional wisdom and increased production last year, even in such a harsh operating environment. Freeport, Goldcorp, and Southern Copper could perform very well this year should the gold rally continue, thanks to their shrewd management teams.

Volatile stocks like these might not be the best way to start investing
Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal-finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2837956, ~/Articles/ArticleHandler.aspx, 9/5/2015 2:01:11 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Bob Ciura

Bob Ciura, MBA, has written for The Motley Fool since 2012. I focus on energy, consumer goods, and technology. I look for growth at a reasonable price, with a particular fondness for market-beating dividend yields.

Today's Market

updated 4 hours ago Sponsored by:
DOW 16,102.38 -272.38 -1.66%
S&P 500 1,921.22 -29.91 -1.53%
NASD 4,683.92 -49.58 -1.05%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/4/2015 4:02 PM
FCX $9.71 Down -0.42 -4.15%
Freeport-McMoRan C… CAPS Rating: ****
GG $13.36 Up +0.03 +0.23%
Goldcorp, Inc. (US… CAPS Rating: ***
OSKFF.DL $0.00 Down +0.00 +0.00%
SCCO $26.37 Down -0.78 -2.87%
Southern Copper Co… CAPS Rating: ***