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 anna.prior@dowjones.com
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