Shares of Eldorado Gold (EGO 2.97%), Pretium Resources (PVG), and Yamana Gold (AUY) fell by 18%, 11%, and 13%, respectively, in the month of November, according to data from S&P Global Market Intelligence.
The sharp declines in all three gold-oriented stocks comes as no surprise, considering the price of gold fell 1.3% in November. But in all three cases, investors were moved to sell off shares for reasons that transcend a drop in the price of the yellow stuff. Let's see what other forces were at play.
A less-than-glimmering earnings report
Leading the way among reasons why Eldorado Gold lost its luster last month was the sour taste left in investors' mouths from the company's third-quarter earnings report. Due in large part to lower gold sales from the Kisladag mine located in Turkey, Eldorado reported $81.1 million on the top line for Q3 2018, a 15% decline from the same period last year. Investors didn't find much solace at the bottom of the income statement; the company reported negative $109.4 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) -- a stark turnaround from the positive $20.2 million it reported in Q3 2017 -- as the company contended with rising production costs. It wasn't only the company's financials, though, that troubled investors last month. Management also had no update regarding its plans in Greece. Addressing the stalled project, management said on the conference call, "This is incredibly disappointing as we have always acted in a manner consistent with finding a mutually agreeable solution to developing Skouries responsibly."
It didn't take long for this short report to shake shareholders
Intermediate gold producer Pretium Resources released its Q3 2018 earnings in the beginning of the month. One area that glittered in the report was the strong year-over-year top-line growth of 39%, which the company attributed to rising gold and silver production. With all-in sustaining costs falling from $788 per gold ounce in Q3 2017 to $709 in Q3 2018, the company also recognized strong bottom-line growth. Pretium booked earnings per share of $0.06 in the recently completed quarter compared to a loss of $0.04 during the same period last year.
So why did shares plummet? Investors, apparently, took the company's strong earnings report with a grain of salt thanks to a short-seller's report that was released in early September. In the report, Viceroy Research Group cast significant doubt on the value Pretium's principal asset: the Brucejack Mine, located in northwestern British Columbia. According to Viceroy, "The overwhelming majority of our research indicates Pretium manipulated the results of its bulk sample program through an overreliance on samples taken from the Cleopatra vein, thereby artificially inflating Pretium's grades and reserve projections for the Brucejack Mine." Perhaps the most striking line in the report, however, is Viceroy's conclusion that "the most likely scenario is that Pretium's assets are seized by its secured creditors as collateral."
Digging into what drove Yamana down
Extending a 27% slide through the first 10 months of 2018, shares of Yamana Gold plunged 13% last month. Besides reacting to the dip in the price of gold in November, investors responded unfavorably to the company's Q3 2018 earnings report. Although Yamana exceeded expectations and reported production of 279,464 gold equivalent ounces and copper production of 28.6 million pounds, the company reported a 15.5% year-over-year decline in revenue because of the drop in the price of gold during the quarter -- a period during which the company realized an average price of gold of $1,213 per ounce compared to $1,278 during the same period last year. Turning to the cash flow statement, investors didn't find much solace: Yamana reported $64.5 million in operational cash flow in Q3 2017, a 57% drop from the $149.8 million it reported in Q3 2017.
Shareholders also responded to a note of pessimism from Wall Street. As reported by Thefly.com, HSBC downgraded Yamana Gold's stock to hold from buy in the middle of the month. Though there weren't other analyst downgrades during the month, the effect of HSBC's rating change is more notable considering an analyst at Barclay's initiated coverage on the stock with an underweight rating and a $2.50 price target in October.
The golden takeaway
With the declining price of the yellow stuff, it comes as little surprise that gold-mining stocks also tumbled in November, but it's clear that there's more to this story than merely the falling price of gold. Regarding the analysts' downgrades, investors should remember that, oftentimes, the Street has a shorter time horizon than we espouse. Similarly, investors should be circumspect about the report from Viceroy, as the short-seller stands to benefit from downward movement in the price of Pretium's stock.
Looking ahead, investors should monitor Eldorado's progress in developing the Skouries project, for it could be a great boon to the company's financials if it ever commences gold production. And in regard to Yamana, investors would be well-served to see how the company fares in attempting to achieve its upwardly revised gold-production forecast of 920,000 ounces. Moreover, investors should confirm that Yamana succeeds in growing free cash flow in the months ahead -- something that management had suggested would happen when Cerro Moro ramped up operations through 2018.