ASX gold stocks are getting hammered

Are falling share prices a bet on a lower gold price?

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published May 1, 2012 12:46 pm AEST

The S&P/ ASX All Ords Gold Index — made up of gold miners, explorers and gold developers — is down over 18 per cent in the last six months, despite the gold price falling by only less than 5 per cent, from around US$1,750 per ounce in October 2011, to around US$1,663 currently.

Over the same period the S&P/ASX Industrials Index has risen over 10 per cent.

The gold price has fallen back as Europe and the US muddle through their issues, with the world's top economies appearing to have pulled back from the brink of GFC Mark II.

The ASX's largest listed gold miner, Newcrest Mining Limited (ASX: NCM) has seen its share price fall 23 per cent in the last six months, and over 37 per cent in the last year, from a high of $42 to now be trading around $26.30.

Six-monthly performance of the top ten gold miners

Company	Six month % change	Market Cap	Current price	Current PE
Newcrest Mining Limited (ASX: NCM)	Down 23%	$20.1bn	$26.28	17.9
Regis Resources Limited (ASX: RRL)	Up 37%	$1.9bn	$4.14	30.7
Evolution Mining (ASX: EVN)	Flat	$1.2bn	$1.74	N.A.
Perseus Mining Limited (ASX: PRU)	Down 20%	$1.18bn	$2.58	N.A.
Resolute Mining Limited (ASX: RSG)	Down 4%	$1.09bn	$1.66	10.4
Medusa Mining Limited (ASX: MML)	Down 16%	$1.07bn	$5.64	14.5
Kingsgate Consolidated (ASX: KCN)	Down 21%	$862m	$6.13	19.2
St. Barbara Limited (ASX: SBM)	Flat	$742m	$2.28	10.1
CGA Mining Ltd (ASX: CGX)	Down 8%	$720m	$2.16	46.1
Silver Lake Resources Limited (ASX: SLR)	Down 1%	$715m	$3.25	25.2

Source: Google Finance

Regis Resources is the only stock up out of the top ten, with the company expected to triple gold production from 2012/2013, from 100,000 ounces to over 300,000 ounces. The company reported its first net profit in 2011 of $36m, with analysts predicting revenues to hit over $550m in financial year 2013, and earnings per share to rise from 14 cents in 2011, to over 60 cents in 2013. With cash costs expected to fall below $500 per ounce, the company is fairly well protected from a significant fall in the gold price. All of that good news appears to have been priced in, with the stock trading on a P/E ratio of over 30.

The price of gold is not the only factor that can affect the price of gold miner's shares. Gold supply and demand, weather events, management decisions, accidents, diesel costs, taxes and political decisions are among the many influences on share prices.

Several of the companies above may have been afflicted by some of these factors as well as the slide in the gold price.

Foolish takeaway

For the gold bulls out there, the steep price declines of some of the gold stocks above, relative to the price of gold, may offer a chance to get back in.

For the gold bears, this article provides some evidence of the risks in investing in gold stocks, and to steer clear of gold mining stocks and focus instead on industrial stocks.

The ASX is already on the move in 2012, and Goldman Sachs experts recently said they reckon S&P/ASX 200 could top 5,000 next year. Read This Before The Coming Market Rally is a must-read for investors who don't want to miss out on the party. Click here now to request your free copy, before it's too late

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Motley Fool contributor Mike King owns shares in Kingsgate Consolidated. Take Stock is The Motley Fool Australia's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691).

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