Gold Undervalued Due To Massive Stock Dilution & Debt
Hold your real assets outside of the banking system in a private international facility --> http://www.321gold.com/info/053015_sprott.html
Gold Undervalued Due To Massive Stock Dilution & Debt
Posted with permission and written by Steve St. Angelo, SRSrocco Report (CLICK FOR ORIGINAL)
The market price of gold would be considerably higher if it wasn’t for the massive stock dilution and debt in the gold mining industry. Basically, the gold mining industry issued billions of new shares and debt to help replace production and to compensate for rising costs. Thus, investors of gold mining stocks got ripped off so the market could enjoy an artificially lower gold price.
Nothing like Free Market Capitalism at work.
Top 5 Gold Producers: Production vs Shares
If we look at the data from the top five gold producers since 2000, we can see a very interesting trend. In 2000, these top gold producers (Barrick, Newmont, AngloGold, GoldFields & GoldCorp) had 1.39 billion shares outstanding, while their total production was 23.6 million ounces (Moz).
Now compare that to year ending 2014, where combined production for the group declined to 20.9 Moz while total outstanding shares increased to a staggering 3.65 billion (shown in the chart as 3,652 million shares). Since 2000, these top five gold companies increased their shares total shares by 2.2 billion while total production declined by 2.7 Moz.
This next chart shows the increase of outstanding shares for each gold mining company:
(GG: GoldCorp, GFI: GoldFields, ABX: Barrick, NEM: Newmont, AU: AngloGold)
Here is a breakdown for the increase in shares for each since 2000:
Barrick = +769 million shares
GoldCorp = +657 million shares
GoldFields = +332 million shares
Newmont = +332 million shares
AngloGold = +191 million shares
What has taken place in the top gold mining industry is simple… profits alone could not fund new projects (replacement production) or increased costs, so the industry raped shareholder value.Here’s another way to look at this wonderful phenomenon.
If we compare total annual gold production versus outstanding shares, this is the result:
In 2000, these top five gold companies averaged 59.2 shares for each ounce of gold produced. However, in 2014 this increased nearly three times to 174.7 shares per gold ounce produced. Which means, stock investors got hoodwinked into financing the gold mining industry as profits alone were unable to do so.
And if you think that is bad…. it get’s even worse.
Top Gold Companies Increased Debt To Fund Production
Not only did these gold mining companies issue a lot more shares to fund their operations…. they also added a lot of debt:
As we can see in the chart above, total debt (liabilities) for these top gold companies was $7.2 billion in 2000 compared to a staggering $58.5 billion in 2014. If we apply simple math we have the following…..
Top 5 Gold Companies Debt per oz of gold produced:
2000 = $305 debt/ gold oz produced
2014 = $2,800 debt/ gold oz produced
What a change…. aye? These top gold producers held just $305 in debt for each ounce of gold they produced in 2000, however this skyrocketed to $2,800 of debt per ounce in 2014. That’s a lot of debt.
Imagine what the real cost to produce gold if these top mining companies did not issue 2.2 billion more shares or increase their debt more than eight times over the same time period. Thus, the market price of gold is artificially lower due to massive share dilution and colossal debt.
Investors purchasing gold (and silver) will be handsomely rewarded when the public finally realizes that they are holding onto DEBTS masquerading as ASSETS. This is when the true store of wealth value of gold and silver are realized.
Please email with any questions about this article or precious metals HERE
Gold Undervalued Due To Massive Stock Dilution & Debt
Posted with permission and written by Steve St. Angelo,SRSrocco Report (CLICK FOR ORIGINAL)
Independent researcher Steve St. Angelo (SRSrocco) started to invest in precious metals in 2002. Later on in 2008, he began researching areas of the gold and silver market that, curiously, the majority of the precious metal analyst community have left unexplored. These areas include how energy and the falling EROI – Energy Returned On Invested – stand to impact the mining industry, precious metals, paper assets, and the overall economy.
You can find many of Steve’s articles on many noteworthy sites. Visit Steve at https://srsroccoreport.com.
(4 votes)
»
- Sprott Money's blog
- Login or register to post comments
- Printer-friendly version
- Send to friend
- advertisements -
THAT story holds for almost all other stocks too : through massive buying of their own shares while making debt, numerous Cies boosted or supported their share prices while saying the earnings/share were still as high as before or higher. In fact, the earnings declined but that was masked by the decrease in the number of outstanding shares and the unseen or unreported debt.
When you buy the Miners you are buying a Company, it has to make money, have a plan, Costs, and all that stuff.. Gold the metal just happens to be their Product
Now if you owned the whole mine outright and got to keep whatever you found in the bottom of the hole, that's a whole different Scenario
SILVER HEADED UP http://www.bloomberg.com/news/articles/2016-01-13/gold-holds-drop-as-inv...
But I thought the "smart money" buys gold stocks instead of gold???
Fools...physical gold has almost nothing to do with the 'price of gold'. With 230 billion dollars PER DAY traded (Forex, LBMA etc) how could it?
'Gold' is just another fractionally reserved currency...for now.
One day it will have to end but until then please stop these articles that seem to think the metal has ANY effect on the price.
Thas right...more gold is traded every day than is mined in a year....Fofoa has some interesting posts on this derived from the 2011 (IIRC) data from the LBMA (IIRC)
Silver is soaring right now?
It has nothing to do with buyers and sellers, its the perception that gold has no other use than holding it in your hand as a barbarous relic, which is exactly what the purveyors of metals manipulation are busy at promulgating every minute of the night and day. Have you noticed that since 2007 the rash of We Buy your Junk Gold and Silver for Cash establishments that we springing up everywhere have for the most part vanished? Sure their continues to be Pawn shops who will buy your junk jewelry for cash, but just Junk gold and silver, their is not enough left to keep these stores operating. Central Banksters have been piling up and stacking gold and silver bars like Paul Bunyan stacks his cord wood. What are the moneychangers up to now? if you continue to be patient you are going to find out soon, probably this year. We already understand and know that when gooberment, wall street and banksters team up and work together for the same cause, anything that needs to be manipulated a desired direction can be operated and maintained for just about any amount of time required until the time comes to shift the gears, and the next gear shift is upon us, only waiting for the high command to push the correct sequence of electronic digits and then its lights out, then your only hope is going to be that you had the foresight to make a plan.
Everyone I know ha already sold off whatever little gold they had, and most don't even think of silver as having much value. Unless it's a pre-65 quarter or dime...for some reason people think of those as valuable, though they can't say why. But when I go to yard sales and come across the old coins, the sellers want good money for them. Yet those same sellers will give me sterling jewelry for next to nothing.
And an amazing number of folks have sold me their gold jewelry for a buck or two per piece. At one sale, I actually pointed out to the two older women running it that many of the pieces they were selling at a dollar apiece were marked 14k, etc. Told them they could do better taking it to a jeweler for meltdown. The one woman gives me this look, says "Oh, I don't have time for that shit.", like it wouldn't have been worth her while.
I did a one-arm sweep of that table, bought the whole lot, and made close to a thousand dollars selling off PART of the lot, with the better pieces going into the stack.
Yeah, those cash-for-gold places have dried up...not only have people already sold most of what they had, they don't even think it's worth the trouble for the stuff they have left.
God, please just give me ONE more spring/summer/fall yard sale season before gold makes its move. Pleeeeeeeeaaase!
Dude, I'l give you 10 oz of Ag for the name of the neighborhood where you shop at yard sales.
You would be up if you purchased gold the past few years in most all other currencies besides the USD
Gold is down and going down a lot more in 2016.
More than 40% loss in value from the peak for the magic metal that is over-hyped as the preserver of value.
Gold = where money goes to stop working to produce income, to rot and die.
Gold = where money goes..?!
LOL
Gold = money.
Everything else, including the dying US dollar - it's just loans.
Undervalued!! What a joke. There are more sellers than buyers. Period. That's because there's a secular deflation going on in commodities in general. Fools keep trying to find the bottom. Bottoms occur when all hope is lost. Look at this Radar depiction (below) of the positive vs. negative momentum and momentum is nothing more than the calculation of supply and demand. Until that changes, all opinions about "value" are meaningless. It only becomes valuable when the majority thinks and acts by buying. Until then it gets even more "undervalued".
http://www.quacera.com/#!commodity-report/cdjx
Undervalued!! What a joke. There are more sellers than buyers. Period. That's because there's a secular deflation going on in commodities in general. Fools keep trying to find the bottom.
----
Fools always consider gold as a "goods/comodites" and always make on the basis of this stupid opinions, their stupid, primitive conclusions, that the gold it is "only goods, like any other comodites... in general..." and for this reason tro-lo-lo-lo.....
I told ya so!
Last Sunday night while gold price optimism was running high at 1110, I predicted a fall back down to 1080 this week, and here we are. Too easy. If I ever had enough guts put my money where my mouth is, that is when things would turn.
The shorts shall be served.
Charts and graphs are great. If you want to simplify a picture to the point of making all of the messy, and subjective, details which go into understanding any business activity just disappear!
You can change start and end point, hide conflicting data, rearrange causal relationships to suit your taste, and generally, turn what were once hard numbers into playdoh. Case in point here. We can go to town on comparing debt vs production during a set period. But if we ah, - forget - to factor in small details - like Barrick's decision late 2009, to close out the hedge book and grab some extra equity from the market,the value of our colorful exercise can go out the window quick. Unless simple explanations are what we need.
It was described, at the time, as the 'biggest primary equity offering of all time in the Canadian market'- to finance it's naked short positions masquerading as long-term forward sales contracts and paying for it by share dilution. It is no longer true, so therefore, perhaps hard to remember, but at the time, when Barrick sneezed, the whole segment caught a cold.
It may also be difficult to remember, but Barrick was forced to shut down the perpetual motion machine primarily because of the work of two guys - Bob Landis and Reg Howe - pulling up more dirty underwear from within Russel Oliphants toy box than could be laundered by a score of "Chinese" laundromats working overtime. So while it is true that shareholders got the shaft - both before, AND after the change in corporate strategy, that does not add up to a case for explaining gold's price trajectory in the period on these graphs. Nor why gold is 'undervalued.'
Unless you really need it to.
Perhaps one day, we will eschew the pretty charts and easy explanations for why gold - went down, after going up - and do some digging into the story of real people and real events which cannot be turned into a series of intersecting lines on a chart.
BobEore,
Nice comment.
Do you recall when Goldfields bought a wad of the Bank of England's gold? (Brown's Bottom) They bought the physical in order to close out shorts (forward sales) at a price below their cost of production.
GFI's South Deeps might just be on the way to profitable production. If so, GFI might just be a winner. I will bet it that way for a while.
I look forward to more of your commentary.
Thanks, O Cestoda-like one.
Fraid I wan't much around for Gordon's hand-offs to deserving corporate sponsors. But if I'm not mistaken, it would have had a very similar feel to it as the Bushey Bandit's gift to the fledgling Barrick in the form of extensive Nevadan real estate leases.
I'm always amused to see how the hardest working motors of the 'free enterprise' economy seem to be joined at the hip with those who like to 'socialize' losses to the public purse, while 'privatizing' profits to the benefit of needy cronies. If you are ever in need of a real larf - get a hold of Peter Munks' ghost-written autobiography/hagiography and watch how modern day mythology is constructed!