Reasons to Avoid AuRico Gold

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AuRico Gold (NYSE:AUQ) reported its fourth-quarter and 2013 earnings figures on Monday. The shares fell more than 6 percent in response. True, the gold price was down a little more than 1 percent; however, gold mining stocks held up fairly well, with the Market Vectors Gold Miner ETF (NYSEARCA:GDX) falling less than 1 percent and the Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ) actually rising slightly.

I think this fall in price reflects some real issues at the company. Further, while the stock has performed roughly in line with its peers so far this year to date, I suspect that we will see the shares underperform long-term.

The company reported operating cash flow of 7 cents per share, or $17 million, and it reported a loss of $106.4 million due to write downs (a common occurrence for gold miners in this environment). While the company bragged that it made a significant step forward in commencing underground production at its Young Davidson mine in Canada, it has yet to demonstrate that this mine is going to be economically feasible when we take all costs into consideration.

The company already suffered from razor-thin margins with its fourth-quarter all-in sustaining costs coming in at $1,232 per ounce. As was expected, the company’s costs rose in the fourth quarter as a result of the added cost of bringing the Young Davidson underground operation online. Still, we saw all-in sustaining costs come in for the year at $1,181 per ounce. While this makes the company profitable on an operating basis, we need to take a step back and view this figure in a broader context.

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