What happened

Shares of South Africa-based gold miner Gold Fields (NYSE:GFI) rose an impressive 54% in April according to data from S&P Global Market Intelligence. That came on the heels of a roughly 20% decline in March. However, the shares were down over 30% at one time during that month. The shift from a dour mood to a positive one was broad-based across the entire stock market between March and April, but the truth is, there are still material issues on the horizon.

So what

Gold Fields has operations in Africa, Australia, and South America. It's all in sustaining costs are over $1,000 per ounce, so it's on the higher end of the production cost spectrum. And it has a key development project in the works. As COVID-19 started to spread across the globe, investors took a risk-off attitude in March, which helped push the stock price sharply lower. Reinforcing investors' negative view was the late March announcement that the company was temporarily closing a key asset in South Africa, the massive South Deep mine -- a government-mandated shutdown that was part of that country's attempts to stem the spread of the coronavirus.

When the company provided its first-quarter operational update, it reported a roughly 12% year-over-year production decline. Notably, gold was flat across the month, using SPDR Gold Shares as a proxy, which didn't provide much support to the stock in the face of broadly negative market sentiment. 

A gold miner holding up a gold nugget

Image source: Getty Images

In April, the mood on Wall Street improved materially and Gold Fields stock bounced back fairly strongly. Gold prices, meanwhile, were up by around 7%. With relatively high operating costs and a somewhat higher-risk portfolio profile, Gold Fields is leveraged to the price of gold, so its large price move wasn't surprising. That said, COVID-19's impact is far from over. For example, the miner announced in early May that a miner at one of its facilities in Ghana had tested positive for the coronavirus. This ongoing situation could further hamper its operating results.   

Now what

Gold Fields is a relatively high-cost miner with a far-flung collection of assets and a relatively small production profile. The stock can be pretty volatile, often moving materially more than gold prices. By comparison, industry giant Newmont Mining produced roughly three times more gold in the first quarter than Gold Fields. Newmont's stock "only" rose 31% in April, but it was up about 1% in March when Gold Fields' stock fell sharply. Through the first four months of the year, Gold Fields stock was up 11% while Newmont was up 36%. Investors looking for a gold investment to diversify their portfolio would be better off looking past Gold Fields to a larger miner or a streaming company.   


This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.