ASX gold stocks slammed

ASX posts first rise in four days, but that didn't help the gold miners

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 October 25, 2012 4:43 pm AEDT

The S&P / ASX 200 Index (Index: ^AXJO) (ASX: XJO) ended up just 0.1%, closing at 4510.5. Wall Street was down overnight, with the Dow Jones Industrial Average falling 0.2%, while the S&P 500 lost 0.3%.

As you might expect on a fairly flat day, sector performance was mixed – gold and materials were down, while the A-REITs (property) and Telecommunications sectors posted gains.

The Australian dollar continues to defy gravity, rising slightly against the US dollar to 103. 6 cents.

These three gold stocks were smashed by the market, falling by more than 8%, as the gold price slipped below US$1,700 an ounce for the first time since September.

St Barbara Limited (ASX: SBM) lost 10.8% to end at $1.925, after reporting disappointing production results yesterday. The miner produced 77,700 ounces of gold in the quarter, a 21% fall compared to the previous quarter, due mainly to issues at its Gwalia mine, and winding down production at its Marvel Loch operation. The company is forecasting an increase to production in the December 2012 quarter, continuing into 2013. The market seemingly wasn't having a (gold) bar of it.

Alacer Gold Corp (ASX: AQG) fell 9% to close at $5.23 after it too reported a fall in production for the quarter. The company produced 91,000 ounces of gold, compared to 96,000 ounces in the previous quarter, a 5% fall, as the miner processed lower grade ore to get to the high grade regions. Higher grades are expected to be mined in the next quarter, and the company has maintained its forecast to produce between 385,000 to 403,000 ounces of gold for the 2012 financial year.

Evolution Mining Limited (ASX: EVN) dropped 8.8% to end at $1.87, despite producing 94,446 ounces of gold in the quarter, which was above its guidance for 85-90,000 ounces. Cash costs continue to fall, with the company recording cots of $732 an ounce (before royalties and silver credits). Evolution is forecasting to produce between 370,000 to 410,000 ounces of gold in the 2013 financial year.

The Foolish bottom line

The results of the above three companies illustrates some of the issues with investing in resources companies. Production and revenues can fall due to unexpected issues, some of which can continue to affect output for much longer than management may expect. A resource is a finite product. Once a mine has been mined out, the company needs to go out and do more exploration to find a replacement resource, which can be costly and very often, unsuccessful.

If you only invest in one company this year, make it our "Top Stock for 2012-13". Operating in two hot markets — one set to double by 2012, the other predicted to grow 5x over the next five years — this stock is a solid growth play that also boasts strong recurring revenue, zero debt, and lots of cash. Get its name and full research case in this brand-new FREE report.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool'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). Authorised by Bruce Jackson.

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