Have These Gold Mining Stocks Finally Hit Bottom?

Upside looks possible for IAMGOLD, Eldorado Gold, and Kinross Gold unless the price of gold continues to take a beating.

Jun 17, 2014 at 9:56AM

As gold prices remain soft, gold miners' shares find themselves on shaky ground. However, it looks like for some of them, the worst could be over. IAMGOLD (NYSE:IAG), Eldorado Gold (NYSE:EGO), and Kinross Gold (NYSE:KGC) were under serious pressure last year, but so far this year their shares have stood firm. Does this mean that these miners have reached their bottoms?

IAMGOLD: relying on the price of gold
Despite cost-cutting efforts, IAMGOLD remains a relatively high-cost producer. The company's all-in sustaining costs (AISC) dropped from $1,290 per ounce of gold in the first quarter of 2013 to $1,198 in the first quarter of 2014, but remain close to the current gold price. This year, IAMGOLD targets AISC of $1,150-$1,250 per ounce of gold.

Besides gold production, IAMGOLD produces niobium on its Niobec mine in Canada, and this mine improves the company's position. Together with Niobec, IAMGOLD expects full-year AISC of $1,080-$1,185 on a gold ounce basis. While IAMGOLD is vulnerable to further gold price downside, the company is likely to stay profitable in the current price environment. In this case, the bottom seems to be behind for IAMGOLD.

Eldorado Gold: cost performance and strong balance sheet should lead to upside
Eldorado Gold is set for a decent performance this year. The company targets full-year AISC at $915-$985 per ounce, which protects it even in the case of a further price slump. The company's cash on hand exceeds its long-term debt, making its financial position very solid. What's more, the excessive cash could be used to take advantage of depressed gold asset prices should the opportunities present themselves. Also, the company has several projects in the pipeline, and could use its cash for them as these projects progress.

Good cost performance and a solid financial situation are a good mix to set the scene for growth going forward. This year is likely to be relatively calm for Eldorado Gold, but the company is in a good position to benefit from an improving gold market in the future.

Kinross Gold: Russia-related worries are excessive
Kinross Gold shares slipped at the end of March following increasing tensions between Russia and Ukraine. Kinross Gold's cheapest mines, Dvoinoye and Kupol, are situated in Russia, so the prospect of sanctions on the country unnerved investors. Time passed by, and the worst-case scenario did not unfold. In the current situation, there is not any threat for Kinross Gold's Russian projects. Meanwhile, the company showed a solid first-quarter performance with AISC of $1,001 per ounce, which puts it on the good position on the cost curve.

On the growth front, the company expects to make a decision on its Tasiast expansion project in Mauritania in 2015 at earliest. The recent feasibility study of the expansion was encouraging, but Kinross Gold wanted to see where the gold price is going before making an expensive commitment to the project. Among other positive developments, Kinross Gold could recover part of its investment in Fruta del Norte mine in Ecuador, which could add around $300 million to its balance sheet. Fruta del Norte caused a $720 million impairment in the second quarter of 2013, so any money recovered from the project is positive news.

Bottom line
Chances are that we have already seen the bottoms for IAMGOLD, Eldorado Gold, and Kinross Gold. If gold prices manage to hold at current levels, these miners' shares will see upside. 

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Vladimir Zernov has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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