Gold miners’ results all over the map
By Peter Koven
Over the last two days investors have been given more reminders that gold mining is a tough business and that many things can go wrong.
Four of Canada’s largest gold miners reported fourth quarter earnings, and the results were all over the map. One (Goldcorp Inc.) was excellent, one (Barrick Gold Corp.) trailed expectations, and two (Kinross Gold Corp. and Agnico-Eagle Mines Ltd.) were marred by massive writedowns.
The writedowns came as no surprise to the market, but they illustrate the enormous challenges miners face, even with gold prices above US$1,700 an ounce.
For example, Kinross has a very deep pipeline of development projects, but its ability to build the mines on a reasonable budget has been hampered by industry-wide cost inflation that is spiralling out of control.
On Wednesday night, Kinross announced official delays to its Lobo-Marte and Fruta del Norte projects as it focuses on the larger Tasiast project.
“With the capital constraints imposed by surging capital costs, and while we have no knowledge of any M&A activity or discussion, we believe it would be best for shareholders if [Kinross] sought a strong merger partner,” George Topping, a Stifel Nicolaus analyst, wrote in a note.
In Agnico’s case, the problems lie with its Meadowbank mine in Nunavut. Operating costs are hovering above US$1,000 an ounce at the remote mine, so the company elected to shrink its operations and write it down by US$644.9-million. Agnico will process less ore and the mine life will decrease by three years, but the company hopes that the trade-off is much lower costs.
Investors welcomed the more conservative plan for Meadowbank and the 25% increase in the company’s quarterly dividend. Agnico’s shares rose 7.2% on Thursday.
Barrick, the world’s largest gold company, can almost always be counted on to meet or beat expectations. But even it fell short in Q4, with adjusted earnings of US$1.17 a share, below the consensus analyst estimate of US$1.28. While the company delivered on its production and cost guidance for the year, its cash costs jumped by more than US$50 an ounce compared to the third quarter, reaching US$505 an ounce.
To outperform its rivals in the long term, Barrick needs to meet its gold production target of nine million ounces a year by 2016. It is looking for 7.3 to 7.8 million ounces in 2012, but will get a big boost in the next two years as the Pueblo Viejo and Pascua-Lama mines enter production.
Goldcorp’s Q4 result was the one that no one could complain about. Adjusted earnings of US$531-million and record revenue of US$1.5-billion left analysts happy.
Not surprisingly, all four companies maintained a very bullish outlook on the yellow metal. It is the one thing they have all been able to count on amid a very tough operating environment.
“When you consider the challenges facing the global economy, whether they’re structural economic challenges or continuing eurozone sovereign debt concerns, and the necessary policy response to those challenges… all of this continues to put pressure on currencies and continues to reinforce gold’s ability to retain its purchasing power,” Jamie Sokalsky, Barrick’s chief financial officer, said on a conference call.