Seeking Alpha
Commodities, gold, oil & gas
Profile| Send Message|
( followers)  

By Brad Zigler

Real-time Monetary Inflation (last 365 days): 3.2%

'Today is for winners, yesterday's for losers' goes some old sports adage. Well, we're going to turn that maxim on its head with this column.

We looked at the five gold mining stocks—that is, those advancing most above their 200-day moving averages—in the Market Vectors Gold Miners ETF (NYSE Arca: GDX) yesterday. Today we'll look at the portfolio's five laggards.

  • Golden Star Resources Ltd. (NYSE: GSS) Golden Star's principal producing properties are located in Ghana. The company also has exploration projects in the West African countries of Sierra Leone, Burkina Faso, Niger and Côte d'Ivoire, as well as Brazil. Golden Star is headquartered in Littleton, Colo.
  • Compania de Minas Buenaventura S.A.A. (NYSE: BVN) Lima-based BVN produces and markets gold, silver and other metals in Peru, as well as offering electric power transmission and engineering consulting services.
  • Kinross Gold Corp. (NYSE: KGC) This Toronto company produces gold from properties throughout the Americas, Africa and the Russian Federation together with its subsidiaries, and engages in mining and processing gold ores.
  • Agnico-Eagle Mines Ltd. (NYSE: AEM) Another Toronto company, Agnico-Eagle's production comes from Canada, Finland, Mexico, the United States and Argentina. In addition to gold, AEM also explores for silver, zinc, copper and lead.
  • Tanzanian Royalty Exploration Corporation (NYSE: TRE) Tanzanian Royalty is actually an exploration stage company that acquires gold properties, primarily in Tanzania. The company also explores for diamond, nickel and other minerals.

One-Year Performance (26-Apr-2010 Through 25-Apr-2011)

% Below

200-day Mov. Avg.

Ann.

Return

Ann.

Volatility

Sharpe

Ratio

Dividend

Yield

Beta

Alpha

GSS

-24.4%

-29.0%

49.6%

-0.59

--

1.24

-0.63

BVN

-17.9%

26.0%

36.4%

0.71

1.6%

0.96

0.00

KGC

-10.8%

-16.0%

33.7%

-0.48

0.7%

0.97

-0.72

AEM

-10.0%

7.9%

31.4%

0.24

0.9%

0.94

-0.18

TRE

-7.9%

38.6%

34.1%

1.12

--

0.64

0.21

GDX

--

27.2%

28.3%

--

--

--

--

Clearly, these stocks have turned in mixed performances when benchmarked against the total universe of miners represented by GDX. Just because a stock was "below average" (its 200-day moving average, specifically) doesn't mean you couldn't have made money with it in the last year, though only one stock outperformed the GDX return.

Regardless of its return, each stock has a unique risk profile.

Risk is most simply reflected in each issue's annualized volatility—the degree to which daily prices wobble above and below the stock's average value.

The Sharpe ratio tells you what payback you get for taking on a stock's volatility. A ratio above 1.00 indicates that more than a percentage point's return is earned for undertaking a percentage point of risk. Ratios below 1.00 signal less than a 1-for-1 payback.

Here, beta measures risk relative to the GDX portfolio as a whole. A beta higher than 1.00 means the stock price varies more than its benchmark's; a beta below 1.00 denotes a stock with less volatility.

You need beta to calculate alpha, a metric of the stock's value in producing above-benchmark returns. Alpha tells you what kind of return you could expect from a stock above a beta-adjusted investment in the benchmark. An alpha of 0.21, for example, implies that you could earn an excess return of 21 percent per annum with the stock if it were as volatile as your benchmark. Alpha represents an investor's reward for stock picking.

Keep in mind that we're looking at historical returns here; for a relative history at that—just a year. There's no guarantee, of course, that these stocks will produce the same results in the year to come.

Still, when it comes to investments, those who know history are better able to prepare for the future.

Source: Some Gold Miners Are Real Losers