Gold Miners Not Sharing in the Wealth

The price of gold has risen by about $200 an ounce since the end of June and has scored about half that gain since the first of September. The yellow metal is on its way to posting its best quarterly gain of the year as economic stimulus programs from the Federal Reserve and other central banks have spurred buyers. Gold prices are up 14% on the year and 11% so far this quarter according to MarketWatch.

Gold miners, on the contrary, have not fared so well. Of the big mining companies, only Yamana Gold Inc. (NYSE: AUY) has been able to top the commodity price gain, rising 30% since the first of the year. Barrick Gold Corp. (NYSE: ABX) is down more than 8% on the year to date, Newmont Mining Corp. (NYSE: NEM) is down nearly 7%, and Kinross Gold Corp. (NYSE: KGC) is down about 10%. Freeport McMoran Copper & Gold Inc. (NYSE: FCX) is up about 7% for the year to date and Goldcorp Inc. (NYSE: GG) is up more than 3.5%.

The miners are faced with rising labor costs and lower grades of ore, both of which have combined to raise operating costs. To make matters worse, labor unrest has hit many mining companies hard.

Gold Fields Inc. (NYSE: GFI) and AngloGold Ashanti (NYSE: AU) have both had to deal with labor strikes at South African mines. Newmont, which said today it would cut jobs at its largest Indonesian mine, could be the next target for worker strikes.

The labor troubles in South Africa started with platinum miner Lonmin, where 45 people have been killed since last month. The company eventually settled with miners on a 22% pay hike, but other companies fear that the settlement will set off a string of demands at other mines. Freeport, too, settled an Indonesian strike by giving workers a 37% pay hike over two years. That will only exacerbate the Newmont’s troubles.

The miners’ issues probably won’t have any immediate impact on the price of gold, but if costs continue to rise the mining companies may be forced to curtail production at marginal mines which will send share their prices even lower. Now does not look like the best time to be in the gold mining business.

The SPDR Gold Shares Fund (NYSEMKT: GLD) is down 0.3% today at $171.79 in a 52-week range of $148.27 to $175.46.

Paul Ausick