In our detailed analysis of the precious metal stocks trading on the North American stock markets, we see both reasons for optimism that the stocks will improve and concern that there could be additional downward pressure on the precious metal stocks trading on the North American stock markets.
Gold commodity prices remain flat again in Q1 2012 whereby gold prices averaged $1,691 / oz in Q1/12, virtually flat from Q4/11 ($1,683 / oz) and Q3/11 ($1,706/oz), but a 22% increase from Q1/11. Average silver prices increased a modest 3% to 32.64/oz in Q1/12, and only 2% from a year ago.
For the precious metal stocks trading on the North American stock markets, we expect a slight decrease in producer margins, as a result of flat commodity prices and continued cost inflation. This would mark the second straight quarterly decrease in producer margins for the precious metal stocks trading on North American stock markets after 11 straight quarters of margin expansion.
Local currencies of the precious metal stocks trading on the North American stock markets improved. The currencies in the prominent gold-producing countries (Canada, Australia, and Brazil) strengthened modestly in Q1/12 after two straight quarters of decreases. The stronger Australian dollar should continue to put a strain on the profit margins of producers such as Crocodile Gold (100% of production from Australia). The stronger Brazilian real will continue to push costs higher for companies such as Jaguar, Luna (100% of production from Brazil).
The average price for oil, which is a major cost component for the precious metal stocks trading on the North American stock markets, especially those with open-pit operations, increased approximately 10% over Q4/11 and approximately 15% increase over Q3/11.
In analyzing the precious metal stocks trading on the North American stock markets we feel the precious metal stocks with production growth and/or lower cash costs in Q1/12 include:
Allied Nevada (ANV) - This top gold stock trading on the North American stock markets is expected to announce Q1/12 production of approximately 41,000 oz Au (45,200oz AuEq), up from 38,000 oz in Q4/11, as a result of the Hycroft heap leach expansion efforts. Reported gold sales will continue to be affected by the lack of an offsite carbon stripping partner, which is a temporary issue and will be reflected in an increase in inventory on the balance sheet.
Brigus Gold (BRD) - This top mining stock previously announced Q1/12 production of 16,922 oz with an average grade of 3.04 g/t from its Black Fox mine, a production total that was higher than market expectations. Production from the underground mine will continue to improve through the year as Brigus adds additional mining faces and continues developing toward larger ore zones at depth.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.