Base Metals Now Dragging Down Gold and Silver Companies

In the past couple of weeks, analysts started to make drastic cuts to their targets for base metal companies to account for tumbling commodity prices and a larger-than-expected economic downturn. Scotia Capital analyst David Christie has taken the next step, and cut gold and silver companies as well.

The problem for precious metal companies is that they often produce base metals like copper and molybdenum as byproducts in their mines. So while they are not hit as hard as the base metal companies themselves by the lower prices, they still take a hit.

"[The third quarter] may prove to have been a difficult quarter for many producers with strong base metal byproduct credits," Mr. Christie wrote in a note to clients. 

He made his biggest cut to Northgate Minerals Corp. (NXG), dropping his price target 12% to C$1.50 a share because of its exposure to the spot copper market. He also made reductions to Barrick Gold Corp. (ABX), Agnico-Eagle Mines Ltd. (AEM), Iamgold Corp. (IAG), Goldcorp Inc. (GG), and Pan American Silver Corp. (PAAS).

The companies that avoided the axe were Kinross Gold Corp. (KGC), Eldorado Gold Corp. (EGO), Silver Wheaton Corp. (SLW), and Harry Winston Diamond Corp. (HWD). They have little to no base metal exposure.

The large precious metals companies will start reporting third quarter results at the end of October.

Comments

[beabaggage:]

NXG is a gold company, not a copper company. They have hedges on the copper remaining in their Kemess South mine to a degree. They may? have hedged more? who knows, see what earnings report says on 11/4 from mgmt. Once the KS mine is done, co. is a pure gold play. Should Kemess North ever come back from the Indian Graveyard! copper may be a factor again, there is a vast copper resource in KN. GOLD folks has held up at $850, down less than 15% compared to other commodities. With this management's savy, NXG is a very cheap option on gold in my opinion with upside to 3-5$, not $1.50 CN. At 96 cents, I am very long and adding all the time with my Canroy Dividends every month. Once things settle out, GFI, Barrick or someone will snatch them up for sure.

2008 Oct 15 08:34 AM