Shares of a handful of gold-mining stocks surged higher during Tuesday's trading session. Leading the way were West African gold miners Golden Star Resources (GSS), which rose by as much as 16%, and IAMGOLD (IAG 1.89%), which jumped higher by as much as 11%, as well as Nevada-based exploration-stage miner Gold Standard Ventures (GSV), which leaped as much as 11%.
Why the sudden surge in the share prices of these three gold stocks? It looks to be a continuation move from jobs-report data that was released last week.
Some 138,000 jobs were created in May, which fell below the expectations of economists and suggested that the Federal Reserve may hold off on raising its federal funds target rate during its June meeting. Prior to this jobs report, the expectation for a rate hike was pretty high among economists. Since higher lending rates tend to increase the opportunity cost of owning gold (higher rates lead to higher yields on safer interest-bearing assets), the Fed passing on a June rate hike would be viewed as a positive for precious metals.
The U.S. dollar has also been pushing lower, which is typically viewed as a positive for gold since the two usually move in opposite directions. In fact, gold hit a six-month high, north of $1,290 an ounce, during Tuesday's trading session. We'll have to wait to see if these prices are sustainable before lifting our expectations of profitability for gold miners, but we're certainly heading in the right direction if you're a precious-metals bull.
Considering that Golden Star Resources and IAMGOLD have historically been higher-cost miners, a surge in gold prices is very much needed to ensure positive cash flow. For investors in Gold Standard Ventures, a wholly exploratory company at this point, there's little to move its share price other than large changes in the price of physical gold.
The big question for these three gold stocks is: Can they get their mining costs down?
Golden Star Resources is counting on its Prestea and Wassa mines in Ghana to fuel its growth, and the initial results, based on its first-quarter report, are encouraging. The underground ramp-up at Wassa is on track, with a 46% increase in production during Q1 compared to the sequential fourth quarter. Underground-mining development costs are hefty, but the reduction in long-term costs and the increase in ore grade and yield should be worth it. For the year, Golden Star Resources expects its all-in sustaining costs (AISC) to come in between $970 and $1,070 per gold ounce. If Golden Star can get its AISC below $1,000 on a recurring basis, it's bound to turn some heads.
IAMGOLD also showed plenty of progress in its Q1 report. Gold production increased by 12% during the quarter to 214,000 ounces, which when combined with an 8% decrease in AISC to $992 an ounce, helped push profits up by 438% year over year. A return to full mining operations at its Westwood mine favorably added to its production, while higher ore grades at Saramacca were the icing on the cake. Yet the most important aspect of IAMGOLD's report is that the company stuck by its full-year production and expense guidance. As with Golden Star, we'll need to see continued effort to cut costs, but IAMGOLD may be inexpensive enough to begin luring in value investors.
As for Gold Standard Ventures, this Fool much prefers producing mines with gold on the rise. However, the key catalysts this year look like resource-estimate updates at Railroad-Pinion, and environmental-assessment permitting, which will allow for additional drilling.