Gold Miners, Resources Stocks Fall Amid Commodities Slump

   By Anna Prior 
 

Mining and energy companies were among the hardest-hit stocks Monday amid a commodities slump, as prices for resources and metals from gold to crude oil fell on fears of a slowdown in economic growth in China.

The bottom of the S&P 500 was littered with miners and resource names--including Cliffs Natural Resources inc. (CLF), recently down 7.2% to $17.81; Newmont Mining Corp. (NEM), down 5.9% to $34.23; and Freeport-McMoRan Cooper & Gold Inc. (FCX), trading 7% lower at $29.70--as data out of China showed economic growth in one of the world's largest consumers of commodities slowed unexpectedly in the first quarter. Shares of Royal Gold Inc. (RGLD, RGL.T), Barrick Gold Corp. (ABX, ABX.T), Range Resources Corp. (RRC) and Pioneer Natural Resources Co. (PXD) also dropped.

Gross domestic product in China grew 7.7% on a year-to-year basis in the first quarter, down from 7.9% in the fourth quarter and lower than many economists forecast.

Meanwhile, adding fuel to gold's drop was the largest gold industry group in India, which warned the country is losing confidence in gold due to the recent price drop.

Gold, recently at its lowest level since March 2011, continued last week's slide that was precipitated in part by news that Cyprus might sell some of its gold reserves to fund part of its bailout package, concerns that the U.S. stimulus could be cut short and a short-call on the precious metal from Goldman Sachs.

"We're seeing a snowball effect," said Garrett Nelson, a mining analyst at BB&T Capital Markets. "We're seeing panic selling in gold, silver and a number of other commodities right now."

Miners with a healthy exposure to gold, then, are feeling the burn.

Newmont Mining, for one, derived some 92% of its revenue from gold sales last year, Mr. Nelson said, while Royal Gold's revenue from gold made up just over two-thirds of the total.

Freeport-McMoRan, on the other hand, has less exposure to gold--about 10% of its revenue, Mr. Nelson said--but its copper exposure led Citigroup to downgrade the stock to sell and lower its price target by $10 to $25.

In a note to clients, Citigroup pointed to its lower copper pricing forecast due to supply additions and growing market surpluses, saying that given its view on copper "we expect FCX to generate minimal free cash flow over the next two years, resulting in a slow deleveraging rate."

Still, there is at least one bright spot for gold miners--they have underperformed gold prices by a "huge" margin over the last couple of years, Mr. Nelson said.

"The equities have that going for them at least," he said.

Write to Anna Prior at [e-mail]

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