Tag Archives: Stocks

Here’s Why Surging Gold Miner Stocks May Still Be Bargains

Bloomberg, Mar 17, 2016

gold_stack

* Production costs drop by a quarter from a record, BI data show
* Compared to reserves, miners are 19% cheaper than year ago

Here’s Why Surging Gold Miner Stocks May Still Be Bargains – Bloomberg Business

Gold-mining companies that are seeing their shares surge the most in decades are still cheap, based on historic measures of their reserves.

An index of large producers, including Barrick Gold Corp. and Goldcorp Inc., has gained a whopping 87 percent in the past three months, more than four times the gold-price rally. That’s after three years of slumping prices made miners leaner, meaning more of the bullion gains flow through to their bottom lines.

While the rally has made shares expensive by traditional valuation metrics such as future earnings, they are still 19 percent cheaper than at the same point last year based on the value of their gold reserves, according to data compiled by Bloomberg.

“Despite the rally in gold and despite the increase in the value for the companies, they’re still trading at a significant discount to where they’ve traded in the past,” said Ken Hoffman, an analyst at Bloomberg Intelligence in Skillman, New Jersey, said. “Gold doesn’t have to get to $1,800 for companies to revisit where they were at their peaks.”

This quarter, the 14 members of the BI Global Senior Gold Valuation Peer Group trade at an average 38 times estimated earnings, compared with a ratio of 20 a year ago. But the index’s enterprise value is about 90 times their gold reserves, down from 111 a year ago, the data show.

That’s partly because production costs are down by about a quarter from 2012, according to data compiled by Bloomberg Intelligence. The average all-in sustaining cash cost declined to $936.20 an ounce in the fourth quarter from a record $1,245 in September 2012, the data show.

In the case of Newmont Mining Corp., every $100 per ounce gain in the price of bullion adds $350 million to free cash flow after taxes, Chief Executive Officer Gary Goldberg said in February.

Gold is up 19 percent this year to about $1,265 an ounce after central banks from Europe to Japan switched to negative interest rates, while traders in the U.S. are pricing the odds of another rate increase by the Federal Reserve before December at less than 60 percent.

That makes bullion a more attractive asset against interest-bearing bonds, and equities that are already seen bearing the brunt of slowing global growth. All these are providing the tailwind that Alan Gayle has been waiting for for three years before jumping back into the asset class.

“We knew these miners were cheap because they were oversold,” said Gayle, a senior strategist for Atlanta-based RidgeWorth Investments, which oversees $37 billion. “We waited. When we knew there was more to it than just a counter-trend rally, we started adding gold miners.”

Not all indicators are so impressive. Average debt among the 14 gold miners stood at 5.25 times their earnings before interest, taxes, depreciation and amortization in the fourth quarter, the highest in at least a decade, the data show.

Even before the rally this year, many had already positioned for the recovery.

In 2015, when bullion traded at a five-year low, the cost of gold assets rose to $119.40 an ounce, after bottoming at $96.20 in 2014, according to a Bloomberg Intelligence analysis of more than 100 mining deals.

“Private-equity firms have raised more than $33 billion just for mining deals since 2010 and have plenty of dry powder left,” Hoffman said.

Improving financial prospects are helping miners outperform the precious metal. The Market Vectors Gold Miners exchange traded fund generated the highest total return this year out of more than 100,000 funds linked to various assets including equities, fixed income, and commodities, according to data compiled by Bloomberg.

“A year ago, they couldn’t make money at $1,200,” said Dan Denbow, a portfolio manager at the USAA Precious Metals & Minerals Fund in San Antonio, which oversees $600 million. “They’ve cut costs they’ve right-sized mining operations, they’ve raised the grade that they’re targeting. They’ve adjusted to the new world.”

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China just sent Europe into bear market. U.S. next?

CNN Money, Jan 20, 2016

China just sent Europe into bear market. U.S. next?

China sure is playing a larger role on the global (economic) stage now.

The Chinese government’s attempts to manipulate its currency and stock market this year have caused a global panic. As China goes, so goes much of the world now.

China’s own market has plunged into bear market territory — a severe drop of 20% or more. And it has dragged much of Europe and Japan with it.

After Wednesday’s big global sell-off, France and the United Kingdom entered a bear market too. Japan’s Nikkei index is also there. Japan exports nearly 20% of its goods to China.

Germany tumbled into a bear market only a week into 2016 as investors worried how the country’s companies would fare if China wasn’t buying as many of its goods. China and the United States are Germany’s biggest trading partners outside of Europe.

While China still claims its economy is growing at 6.9%, most experts believe the real statistic is far lower and that’s why the government is taking such dramatic action.

Major global markets now in bear market status:

China (Shanghai A Share)
Canada (TSX 60)
Germany (DAX)
France (CAC 40)
UK (FTSE 100)
Japan (Nikkei 225)
Europe (Stoxx 50)
U.S. Small Cap stocks (Russell 2000)

What about the United States?

There’s a tug of war between the influence of China and the United States on world financial markets.

U.S. car sales are at an all-time high and unemployment is at a very low 5%. But the economy is still chugging along with “good but not great” growth.

American stocks have taken a big hit, but not nearly as much because the U.S. remains a driver of global growth too. The big drop in oil prices also benefits many Americans because it’s a huge cost savings.

That said, U.S. stocks aren’t immune from the impact of China and the pain in the energy sector from cheap oil and gas. The U.S. market fell into correction this month — a drop of 10% or more.

Whether the U.S. hits bear market territory will largely depend on whether oil prices continue to grind lower and any signs that the economy is deteriorating.

Major global markets now in correction

United States (Dow, S&P 500 and Nasdaq)
Switzerland (SMI)
Australia (ASX)
Russia (Micex)
India (Sensex)

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IEA Says Record 3 Billion-Barrel Oil Stocks May Deepen Rout

Bloomberg, Nov 13, 2015

* `Massive cushion’ gives protection against geopolitical shocks
* Non-OPEC supply to decline next year by most since 1992

Oil stockpiles have swollen to a record of almost 3 billion barrels because of strong production in OPEC and elsewhere, potentially deepening the rout in prices, according to the International Energy Agency.

This “massive cushion has inflated” on record supplies from Iraq, Russia and Saudi Arabia, even as world fuel demand grows at the fastest pace in five years, the agency said. Still, the IEA predicts that supplies outside the Organization of Petroleum Exporting Countries will decline next year by the most since 1992 as low crude prices take their toll on the U.S. shale oil industry.

“Brimming crude oil stocks” offer “an unprecedented buffer against geopolitical shocks or unexpected supply disruptions,” the Paris-based agency said in its monthly market report. With supplies of winter fuels also plentiful, “oil-market bears may choose not to hibernate.”

Crude has dropped about 40 percent in the past year as OPEC defends its market share against rivals such as the U.S. shale industry, which is faltering only gradually despite the price collapse. Oil inventories are growing because supply growth still outpaces demand, the 12-member exporters group said in its monthly report Thursday.

Total oil inventories in developed nations increased by 13.8 million barrels to about 3 billion in September, a month when they typically decline, according to the agency. The pace of gains slowed to 1.6 million barrels a day in the third quarter, from 2.3 million a day in the second, although growth remained “significantly above the historical average.” There are signs the some fuel-storage depots in the eastern hemisphere have been filled to capacity, it said.

Heating Fuel

“The stock buffer is bearish and will probably set a lid on how much higher prices can go in 2016,” Torbjoern Kjus, an analyst at DNB ASA in Oslo, said by phone. “There’s a sizeable risk that we could run totally full,” in terms of storage capacity, he said.

Stockpiles of diesel, used as heating fuel in Europe in the U.S. northeast, were at a five-year high of about 600 million barrels at the end of August. “This could protect the market from a supply crunch should there be a lengthy spell of cold temperatures,” the IEA said.

Production outside OPEC will fall by 600,000 barrels a day next year, with an equal-sized decline in U.S. shale oil, the IEA said. That contrasts with an expansion of 2.4 million a day in 2014 in total non-OPEC output. The IEA’s 2016 forecast for non-OPEC supply, at 57.7 million barrels a day, is 100,000 barrels lower than in last month’s report.

Demand Growth

Overall, the report shows a stronger outlook for oil markets next year because of the cut to non-OPEC supply and increase in the demand forecast, according to DNB, RBC Capital Markets and Sanford C. Bernstein & Co.

“While 2015 remains oversupplied, the picture for 2016 and beyond is becoming very favorable,” analysts at Bernstein including Oswald Clint said in a report.

Faltering non-OPEC supply next year means that the amount of crude needed from OPEC is moving closer to the group’s actual output. About 31.3 million barrels a day will be required from the organization in 2016, 460,000 less than it pumped in October.

Global Demand

Supply from OPEC was little changed last month at 31.76 million barrels a day as declines in Iraq and Kuwait countered gains in Libya, Saudi Arabia and Nigeria, according to the report. Near-record output from the group’s Gulf members means the organization’s spare capacity is “stretched thin,” the IEA said. OPEC ministers will meet on Dec. 4 in Vienna to review their current policy.

Global oil demand will climb by 1.8 million barrels a day this year to 94.6 million amid the strongest growth in India’s consumption in more than a decade, according to the agency. Demand growth will ease next year to 1.2 million barrels a day as the stimulus from cheap fuel fades and China’s economy remains “problematic.”

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Economists Bring Forward Forecasts for More BOJ Stimulus

Bloomberg, Oct 5, 2015

japan

* 42% expect Bank of Japan to move at Oct. 30 board meeting
* January is second-most popular pick for BOJ to adjust policy

Economists brought forward forecasts for when the Bank of Japan may next increase stimulus after economic data that pointed to the risk of the economy falling back intorecession.

With concern growing that the weak outlook is making it more difficult for GovernorHaruhiko Kuroda to reach his 2 percent inflation target, 15 of 36 analysts now predict the central bank will boost its unprecedented asset-purchase program at a meeting on Oct. 30, according to a Bloombergsurvey conducted from Sept. 29 to Oct. 2. This is up from 11 in a Septembersurvey.

“Further easing is the only choice left to the BOJ,” saidMasaaki Kanno, an economist at JPMorgan Chase & Co. and former BOJ official. “If the BOJ doesn’t act in October, its credibility will be hurt, triggering yen gains and slump in stocks.”

Two economists project a move at the next meeting ending on Oct. 7 while 13 don’t expect any policy change at all.

Barclays Plc and Credit Agricole SA are among those who brought their projections forward after an unexpected decline in Japanese industrialproduction in August points to the possibility of a second-straight quarter of economic contraction.

Options for further stimulus include speeding up the pace of Japanese government bond purchases to 100 trillion yen ($830 billion) a year from 80 trillion yen, extending the average maturities of JGBs bought, buying more exchange-traded funds and cutting the interest rate on excess reserves, according toBarclays economists Kyohei Morita and Yuichiro Nagai.

BOJ officials see little need for an immediate expansion of monetary stimulus and would prefer to hold off to get a clearer picture of the economic outlook, people familiar with their discussions told Bloomberg earlier this month.

While there’s a risk that gross domestic product shrinks in the third quarter “the question is whether this represents a slide into a full-blown recession or if it is a soft patch,” saidIzumi Devalier, an economist at HSBC Holdings Plc. She is one of the 13 who don’t expect more easing. “The BOJ clearly thinks it’s the latter, and we’d agree.”

Kuroda began unprecedented stimulus in April 2013 with his aim to achieve the 2 percent price target in about 2 years. He said last week the bank expects to hit the target around the six months through September 2016, while that timing could change depending on oil prices.

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Oil Surges the Most in Two Weeks After U.S. Inventories Decline

Bloomberg, Sep 16, 2015

* EIA reports 2.1 million-barrel drop in crude stockpiles
* Venezuelan proposals for oil-producers summit `advancing’

Oil rose the most this month after a government report showed U.S. crude inventories declined as refineries bolstered operating rates.

Stockpiles slipped 2.1 million barrels last week, according to the Energy Information Administration. Refineries increased operating rates for the first time since July, and supplies of gasoline and distillate fuels surged. Stocks of oil exploration and production companies rallied, while those of refiners fell.

Oil hasfluctuated since slumping below $40 a barrel last month as concern that China’s growth was slowing fueled volatility in markets. OPEC-member Venezuela’s proposals for an oil-producers summit are advancing, Foreign MinisterDelcy Rodriguez said after talks with Saudi Arabian officials.

“The major reason for the inventory decline is that refiners ramped up production,”Craig Bethune, a fund manager at Manulife Asset Management Ltd. in Toronto who focuses on energy and natural resources investments, said by phone. “They probably wanted to take advantage of the lower crude price.”

Surging Volume

West Texas Intermediate forOctober delivery rose $2.56, or 5.7 percent, to settle at $47.15 a barrel on the New York Mercantile Exchange. It was the highest close and biggest one-day gain since Aug. 31. Volume was 42 percent above the100-day average at 2:55 p.m.

Brent for November settlement climbed $2, or 4.2 percent, to end the session at $49.75 a barrel on the London-based ICE Futures Europe exchange.

E&P stocks in the Standard & Poor’s 500 index rose, led by a 6.1 percent gain for Apache Corp. as of 3:25 p.m. in New York. Marathon Petroleum Corp. led losses among refiners, with a 1.9 percent decline.

The stockpile gain left nationwide crude inventories at 455.9 million in the week ended Sept. 11, the EIA said. Supplies atCushing, Oklahoma, the delivery point for WTI contracts and the nation’s biggest oil-storage hub, declined by 1.91 million barrels to 54.5 million, the lowest level since March.

U.S.crude output slipped 18,000 barrels a day to 9.12 million last week, the lowest since November, the EIA said. Crudeimports dropped 270,000 barrels a day to 7.19 million, the least since July.

“Crude imports were down a second week, which is positive for the market,” James Mick, a managing director and portfolio manager at Tortoise Capital Advisors LLC in Leawood, Kansas, who helps manage $15.6 billion, said by phone. “We need to see imports drop off to work off these inventories.”

Refinery Upswing

Refineries increased operating rates by the most since April, the report showed. U.S. refiners typically slow during September to perform maintenance after the end of the summer peak driving season.

“The rise in refinery activity is counterintuitive for the time of year,”Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone. “The product build was probably due to the crash in demand after Labor Day.”

Gasoline supplies climbed 2.84 million barrels to 217.4 million, the highest level in two months.Implied demand for the fuel dropped 0.4 percent to 8.98 million barrels a day, the least since May.

Inventories ofdistillate fuel, a category that includes diesel and heating oil, increased 3.01 million barrels to 154 million, rising a 17th week, which is the longest stretch of advances since 1988.

“There’s always a concern that you’ll move the glut from crude to the products,” Mick said. “That doesn’t seem to happened yet, but I’m concerned about distillate.”

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