Gold Undervalued Due To Massive Stock Dilution & Debt

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 raped 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).

Top-5-Gold-Production-vs-Total-Outstanding-Shares

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:

Top-5-YCharts-Change-Oustanding-Shares

(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:

Top-5-Gold-Production-vs-Shares-Per-Gold-Oz

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:

Top-5-Gold-Producers-Increase-In-Total-Liabilities

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.

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42 Comments on "Gold Undervalued Due To Massive Stock Dilution & Debt"

  1. It’s time to make sure your tray is in it’s upright and locked position; That your seat belt is securely fastened as we make our final approach to the destination….

    • Its odd (not really, lol) that none of the financial advisers i read mention debt problems with AU/AG miners…. its just buy, buy, buy. Thanks for the heads up …. i will stick will bullion and avoid the mines themselves.

    • The so called casino can maintain the status quo for several more years. The only hope for PMs is the reversal of the current dolar trend. The dolar is inversely correlated to crude oil and silver. If one assumes that the current uptrend in the dolar is nearing its end, PMs can go up in 2016. There will not be any armaggedon in the near future. PMs dealers are fearmongers.

  2. Good to have you back Steve…. Happy Fucking Holidays (not Merry Christmas) and a Happy New Year !!!. So what’s new? Is this not the same position the Oil Fracking (That’s FRACKING not Fu…..) Companies are in. Motorists are paying for Oil Fracking Debt by paying an overprice for oil at the pump. So what has changed? Some of my Gold Stocks dropped another 50% in the last few weeks. Maybe BITCOIN or some other BlockChain System will destroy us all ….. 🙂 2016 will be interesting.

  3. I am just being OPTIMISTIC !!!

  4. And why do I wake up every morning I am not depressed? Maybe it’s because I have some GOLD and SILVER coins.. BITCOINS doing better though have to give them some thought.

  5. Thanks. Does this mean SELL ABX and NEM; and, BUY GFI and AU??? in addition to having physical in hand??

  6. What about the producers who get it out the ground the cheapest like under 600 per oz and royalty companies? For example, Tahoe, SLW, RGLD, AU, NGD,SAND, etc? Please advise? thanks, Brian

  7. Steve,

    Very interesting article. So gold miners are just as stupid as our bankers, brokers and politicians.

    True free market capitalism died in October 1987 at the hands of Alan Greenspan. Bernanke and Yellen, loyal comrades tried and true, have done their damndest to keep its spirit locked in the crypt.

    Boy, are they all in for a big surprise. It is coming back with a vengeance.

    Buy for cash and stash.

    SteveW

    • “So gold miners are just as stupid as our bankers, brokers and politicians”.

      In a rigged manipulated financial system maybe they are doing what they have to, just to survive, since they can’t get a free-market price for the products of their labor.

      • I don’t think so David.

        According to mining.com they are all have been and are still making money. Barrick the most with an AISC of $864/oz.(thats $300/oz profit, over 25%) and Goldfields the worst at $1053/oz. (http://www.mining.com/top-gold-producers-margins-squeezed/).

        Clearly, If they were losing any significant amount of money they would shutdown. The gold miners are just like all the other corporate crazies – they borrowed too much money because it was so cheap. Now with rates starting to climb and they will continue to climb, the miners are going to have to bite the bullet and pay the piper. There only saving grace will be the increasing profitability of their product. All the other corporate borrowers will not have that advantage.

        • “The gold miners are just like all the other corporate crazies – they borrowed too much money because it was so cheap”

          You are probably right. I made the mistake of associating their quality products [metals] with a set of ethics or business principles. I assumed they were more sacrosanct than they probably are.

          • David,

            Although Steve singled out only five of the top ten, I suspect the other five have followed a similar path. A good question for Steve would be an analysis of the debts of the silver miners, which I suspect have also borrowed too much money.

            This is part of the reason I have not and will not be buying miner stocks even though they have historically outperformed metals in major bull markets. In this case a bull market that could be unbelievable.

            I believe that when the financial SHTF, the price of gold and silver will skyrocket but so will the price of oil So while the miners gross profits may skyrocket, certainly enough to pay those debts, their net profit margins will not. This effect on net profits will be further compounded by the fact that most of the miners seem to have been high grading to maintain profitability in the current bear market.

            I am sticking to silver in my hand.

            Buy for cash and stash.

            SteveW

  8. If we apply simple math we have the following…..

    banks will own the gold mines on default, or bleed them for all they’re worth when mines short cover production to meet financial compliance.

  9. A commentar from:http://www.stockhouse.com/companies/bullboard/v.spa/spanish-mountain-gold-ltd?postid=24419350

    about naked miner short-selling.Funny!

    Those are the ‘official reported shorts’ not the unofficial, unreported naked shorts that could be in the millions. Old as the hills now and Jim Willey has stated in writing that Canaccord is the conduit for naked shorting in Canada and never been challenged. Illegal Naked Short Selling Appears to Lie at the Heart of an Extensive Stock Manipulation Scheme Posted by Larry Smith on Jun 16, 2015 http://smithonstocks.com/illegal-naked-short-selling-appears-to-lie-at-the-heart-of-an-extensive-stock-manipulation-scheme/ The secrecy that surrounds the shorts,the prime brokers, the DTC and the regulatory agencies makes it impossible to accurately estimate how much money has been stolen from the investing public by these predators, but the total is measured in billions of dollars. The problem is also international in scope. Jim Willie today: july 5/12 see goldseek.com A parallel takes place, like with the Alpha Group for naked shorting Canadian mining stocks through their handy outlet Canaccord.) Who Profits from this Illicit Activity? The short answer is everyone who participates. Specifically: The shorts They win over ninety percent of the time. Their return on investment is enormous because they dont put any capital up when they sell short they get cash from the sale delivered to their account. As long as the stock price remains under their short sale price, it is all profit on no investment. The prime brokers The shorts need the prime brokers to aid in counterfeiting shares, which is the cornerstone of the fraud. Not only do the prime brokers get sales commissions and interest on margin accounts, they charge the shorts interest on borrowed shares. This can be as high as five percent per week. The prime brokers allegedly make eight to ten billion dollars a year from their short stock lend program. The prime brokers also actively short the victim companies, making large trading profits. The DTC Goldman Sachs e-mails show illegal naked short selling was bank’s policy Submitted by cpowell on Wed, 2012-05-16 12:58. Section: Daily Dispatches http://www.gata.org/node/11374 Among the more compelling is the specter of executives from numerous companies admitting openly to engaging in naked short selling, a practice that, again, was often dismissed as mythical or unimportant. So how do you short a stock when you cant find shares to borrow? Well, one solution is, you don’t even bother to borrow them. And then, when the trade is done, you don’t bother to deliver them. You just do the trade anyway without physically locating the stock Naked short selling, in essence, is selling stock you do not have. If you dont have to actually locate and borrow stock before you short it, youre creating an artificial supply of stock shares…. … In this case, that resulted in absurdities like the following disclosure in this document, in which a Goldman executive admits in a 2006 email More damning is an email from a Goldman, Sachs hedge fund client, who remarked that when wanting to “short an impossible name and fully expecting not to receive it” he would then be “shocked to learn that [Goldman’s representative] could get it for us.”
    Read more at http://www.stockhouse.com/companies/bullboard/bullboard/v.spa/spanish-mountain-gold-ltd#bAHFgODo7gX6j2eL.99

    • Who says naked, greedy capitalism is dead?

      Looks like it is alive and well – thriving in naked shorts. (no pun intended)

      Keep them coming Silverfreaky!

      Sie sind wunderbar!

  10. When you want to have the right picture from something, for example from a tree, you have to go around
    and look intensly from all sides.

    Capitalism or communism are words.I’am all at once.It depends at what we talk about.

  11. It’s a little bit funny that in the Gold and Silver markets something similar is going on like in the oil market where investors fund unprofitable mineing companies holding down the price of there underlying goods the investors wanted to originally profit from.

    How to avoid price inflation while expanding the money supply? Easy print money and funnel it into resource companies keeping prices of commodities low. I believe that’s exactly what has been done with the shaleoil. A clever move by the TPTB, and unforseen by all the analyst in the pm market.
    This comes to an end now as everyone will see tremendous bankruptcies will happen in the oil market.

    Thank you Steve for the good work you have done in 2015 witch helped me to stay focused on one of the best future investments ( physical silver) . I look forward to your work in 2016

    Happy new Year

  12. Gold is going lower. The banksters have full control of the market. Gold threatens fiat currency. They will not allow it. With a slowing global economy for the foreseeable future, deflation, with the occasional uptick will be the rule. Even if the PTB take us to war, gold will bump around a bit, but the overall trend will not change.

    We are at a crossroad as a species.

    One possible future: The world economies are declining. Standards of living are decreasing across the board as the world’s wealth is collected by fewer and fewer at the top. When the starving hordes begin to overrun the major economies and revolt, maybe after food and water, gold will have a value. But, before that happens, the PTB will take us to war and by any means possible, (famine, diseases for which only the very few will be immune without a closely held vaccine for the elite). They will begin a world wide culling of humans to lower the population.

    Second possible future: Society and economies need a major restructuring. As technology increases productivity, employment will go down. We will run out of low wage third world countries as machines and automation take over production. There will be fewer and fewer jobs paying a livable wage. We need a new system to accommodate the changes coming. One possible step in the right direction is a move back to local and agrarian economies, enough so that basic needs are met by each individual community. Producing as much as it needs by local craftsmen, small businesses and farmers.

    There is not much time left for us as a society, to decide which way we are going to go. We need to take to the streets and refuse to work for this world wide corrupted system. Quit feeding our slave masters and demand change now, before it is too late.

    And don’t let rising stock markets fool you. As Interest rates rise, bonds go down, the money always goes into stocks first, And temporarily into residential real-estate. Commodities will get a temporary reprieve. Be forewarned, this next stock market blow off may be the last. If we wait until the end of the next “good times,” the “roaring” whatevers, it will probably be too late for us to effect the kind of change I am talking about and the culling will take place.

    • lastmanstanding | December 31, 2015 at 7:23 am | Reply

      Don, great summation and common sense description of what you see. I agree.

      I am hoping that the automation of everything begins to fall on it’s ass…big time. Screw everything regarding corpco. There is plenty of it already that can be repurposed for whatever good humans need. We don’t need more tech. In fact, I was over at Wolfstreet the other day and a bunch of tech geeks were saying that the computer really hasn’t got any better since 1995! Just faster and prettier because after all, without gullible buyers, sellers ain’t got shit!

      It’s odd that in such a “great economy” that they have driven the prices and value of real tangible wealth and items (commodities) into the ground. Telling you that none of this shit is worth a damn…invest in stocks, bonds, blah, blah…fuck’em.

      As far as the pricks that manipulate everything go, I pray that they all end up just like Saddam Hussein…drug out of a dirt hole hiding from those he cheated, murdered and terrorized…if that was the true story. It will work for me.

      • I agree with all accept your hope for the future of automation. With our basic needs met, technology and automation portends a future for the human species that can free us up to pursue more personally fulfilling interests. Rather, than a slave to the banking system and greedy monopolistic capitalist international corporations. There will always be a need for some labor and higher sciences. Those folks could and should be rewarded commensurate with their contribution to society.

        But without the culling that I spoke of, there will not be a rebirth of the pre-technology economy of slavery to the system. It really is on it’s last legs and it can not be sustained.

        Of course if “they” take us to war, you will probably get your wish.

        • lastmanstanding | January 2, 2016 at 10:32 pm | Reply

          As a follower (who has his own mind) here as srsrocco I don’t think that there will be enough energy to waste on automation and the robotics crap.

          Unless they pull some stolen, hidden energy source out of their ass that they have been hiding from humanity.

          Hard physical labor will be better for humanity than tech…look at how pathetic most kids are today…There is a really interesting interview with Warren Pollack over at http://www.usawatchdog.com on June 7, 2015. Part of it suggests that lives will be shortened as time continues due to the deterioration of society, medicine and tech.

          Well worth anyone’s time.

  13. When this all unravels, bitcoins will not save you IMHO and nobody will want them. The miners that survive will do very, VERY well IF (that is a BIG if) the paper markets can somehow be left intact and functional after the re-evaluation of the metals (fizz, the paper metals will burn). So miners are a doubly binary bet. Do they survive, do the paper markets (stock exchanges) survive the coming shock? Time will tell.

    A big thanks to you Steve, our host, for all your work and search for truth. I wish you and all the very best for 2016 and beyond: Especially being on the right side when the hammer falls.

  14. Steve, this is a great article!

    Several years ago Marc Faber wrote about this in his newsletters: Gold miners just can’t get gold out of the ground as easily as they once could. Buy the metal and not the miners. I no longer subscribe to his newsletter but suspect his point of view has not changed.

    Some of the most prominent gold bugs have loaded up on the miners over the years thinking they would get the biggest gains when the price of gold moves. These guys missed the entire gold bull market by holding too little metal and too many mining shares. That has always puzzled me because the the data is just awful when you look at gold miners. It has always been hard to make a case for buying them. Yet I can make an excellent case for holding physical gold, and especially physical silver.

    Mike

    • Own both Metals and Miners. Metals have gone down, Some Australian miners are currently 10x, that’s 1000% up in just over a year.

      To each their own, Good Luck.

  15. Steve, you’ve done it again!

    Great information and facts backing this article. I kept thinking if I could come up with fiat to buy mining shares at these depressed prices that would be a good longer term investment. Not in this metal apparently.

    Have the PRIMARY silver miners done the same thing?? In the past you have stated they MIGHT be a good future investment.

  16. With the obvious goal of driving gold and silver down, by the Fed and Banksters, why would anyone in their right mind want to own a share in any mining stock?

    Physical ONLY. Till the end of the dollar.

    Period.

  17. From about late 2009 to 2012, the hedge fund trade was long gold, short the miners. No brainer. Once you see ABX and so forth issuing share like mad again then same trade will get put on again.

  18. Steve, very good job done
    I watch many article about Gold and Silver. Very little talk about Platinum and Palladium. Look at the price of Platinum. Much more crazy than gold! I do think the manipulation of Platinum is more severe. A lot of people in HongKong buy gold. You can buy gold in many jewelry shop. But very difficult to buy Platinum now. In 2008 Platinum top at more than 2200. At that time some ETF of Platinum come out to the market. After that, Platinum fall and fall and fall. I think the purpose of creation of ETF was part of the manipulation scheme. I remember when the bull market starting at about year 2001 the breakout of Platinum price is a major event. In this gold war (commodities war) we miss out these two P metals. I think these two metal are the weak point of CB. Very little effort can destroy the bankers and default comex. It will be great if you can give us some idea about these two P metal. Thank a lot.

    • Agree but P & P are not historical [or as in the case of gold current also] monetary metals. And that is a crucial difference.

      If I had 5+ million in fiat to re-allocate [spend, invest, whatever one wants to call it] I would spend a maximum of 5% on platinum. It is incredibly rare, very little above ground, and harder to mine than gold, but…

  19. great work steve. Interesting the $300 debt/oz in 2000 – when the price of gold was around $300 / oz too. Perhaps that implies todays gold price should be $2800 ???

  20. @Cheung- I’m surprised that Russia doesn’t take it’s Platinum and Palladium off the market due to western sanctions. That would put the squeeze on the ETF’s if that would occur.

  21. Putin said some days ago.I will have a nice surprise for the USA.
    I thin he is really angry.

  22. Gold has been bullish in almost every other currency except the US. Even at the low spot of $1060US, Australia is trading at $1450. This simply means most Gold miners around the world are turning profits

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