The majority of gold and silver miners are on the ropes, big time. Downgrades by credit-rating agencies are imminent. So they’re scrambling to cut costs, dump assets, and beef up their balance sheets.
That’s what happens when the price of your underlying product plunges, like gold and silver have over the past two years. A call I made way back in September 2011.
And now, the average mining share has lost about 63 percent of its market value. The average junior miner even more, a whopping 78 percent.
According to BMO Capital Markets, 55 gold and silver companies the firm analyzed increased their net debt, or debt minus cash, from less than $2 billion 10 years ago to a record $21 billion today.
Most of that debt was borrowed at extremely low interest rates. Now that rates are rising, many mining companies will get absolutely killed by the additional debt payments.
Consider gold mining giant Barrick Gold (ABX). In 2008, Barrick had $4.5 billion in outstanding debt. It now has $14.8 billion of debt, after borrowing heavily to pay for its $7.65 billion takeover of Equinox Minerals Ltd. in 2011.
That deal was Barrick’s way of diversifying into copper. That wasn’t a smart move since the company borrowed billions and bought a copper company at the top of the copper market.
So in addition to the higher interest rates that Barrick will have to pay on its debt now, it’s also losing money hand over fist on its copper.
As a result, Barrick is postponing its flagship Pascua-Lama mine, whose cost estimate has gone up to $8.5 billion from around $5 billion. It’s also writing off as much as $5.5 billion of debt it thinks will go bad.
There’s more: Due to the rising costs of mining, it costs Barrick roughly $1,800 to get an ounce of gold out of the ground. So with gold at $1,300, Barrick is losing about $500 on every ounce of gold it mines, in addition to its copper losses.
Put another way, gold would have to rally well past $1,800 an ounce for Barrick to make even a few percentage points of profit on its gold. Copper would have to get back to well above $4, up about $1 from its current price. And interest rates would have to come down and stay down for Barrick to survive its debt burden.
A pretty picture? Hardly. But Barrick isn’t alone. It’s the same story for dozens of mining companies out there, small and large.
But quite frankly, it’s also music to my ears.
Why? Because I love buying mining shares when they are beaten up, not when they’re rocketing higher and at the top of a major run.
That’s what my subscribers did way back in the 2000 when I told them to buy gold and mining shares.
If you had heeded my major “buy” and “sell” signals on the yellow metal since then — and you acted on my signals to buy and sell some of the top gold mining shares — you could have grabbed substantial long-term profits. Profits like:
• A 150.6 percent gain in AuRico Gold …
• A 288.8 percent gain in Harmony Gold …
• A 301.5 percent gain in AngloGold Ashanti …
• A 415.4 percent gain in Newmont Mining …
• A 541.1 percent gain in International Minerals Corp. …
• A 554.8 percent gain in Gold Fields Ltd, and …
• A 750.1 percent gain in IAMGOLD Corp. — enough to turn every $1,000 invested into more than $85,000.
And believe it or not, these are not even close to the biggest gainers you could have jumped on:
• Agnico Eagle Mines jumped 850.2 percent …
• Kinross Gold Corp. jumped 877.8 percent …
• Newcrest Mining jumped 1,059.4 percent …
• Goldcorp jumped 1,248 percent, and …
• Royal Gold, one of my favorites, jumped an amazing 2,957.9 percent.
That gain in Royal Gold alone would have been enough to turn every $10,000 you invested into $305,790 … and a $40,000 investment into more than $1.2 million.
Unfortunately, it’s impossible to travel back in time and grab these entire moves. Nobody can. But that’s ok because — as I’ve been warning you recently — gold and silver are bottoming and so are mining shares.
To grab your share of this huge new profit potential,
take these critical steps IMMEDIATELY.
FIRST, make sure you have plenty of cash on hand. If you’ve been following my signals for the last two years — to stay out of or refrain from buying more precious metals and mining shares and to build your hoard of cash instead — please make sure that cash is ready to be deployed on a moment’s notice.
If for some reason you didn’t follow my signals and did not build up your cash hoard, be sure to do so immediately. The best way: Dump any bond investments you own.
As interest rates continue to rise, believe me, those are going down the tubes. Even municipal bonds are a disaster. Just consider Detroit’s bankruptcy last week and how much money bondholders stand to lose there.
SECOND, make sure you have a brokerage account set up and ready to trade mining shares and mining ETFs and leveraged ETFs.
It’s all up to you and what you can afford. But my recommendation is to commit at least $25,000 to trading the next bull market in the precious metals.
THIRD, never forget the biggest profits come from buying assets that the majority are bearish on … from buying companies and investments when they have been beaten down.
But you also can’t just run out and willy-nilly buy any beaten down mining company. For instance, though I liked Barrick before, it’s now off my buy list. In fact, it’s on my list of 10 mining shares to dump right now.
Best wishes,
Larry
