Gold Miners Power-Up on Strong Earnings
By Ben Abelson
11 Aug 2006 at 06:34 PM EDT
resourceinvestor.com
NEW YORK (ResourceInvestor.com) -- It's earnings season, and in the current atmosphere of strong metals prices, that means big rewards for those miners who've properly managed their production and costs. Among the more recent reporters, companies like Northgate Minerals [TSX:NGX; AMEX:NXG] Goldcorp [TSX:G; NYSE:GG] and IAMGold [TSX:IMG; NYSE:IAG] have all announced record quarterly earnings - and were nicely rewarded by the market.
And while comapnies like Yamana Gold [TSX:YRI; AMEX:AUY] and Glamis Gold [TSX:GLG; NYSE:GLG] didn't post amazing numbers, their quarterly reports highlighted anticipated production surges that gave shareholders something to chew on.
On the opposite end of the spectrum, perennial also-rans like Golden Star [TSX:GSC; AMEX:GSS] and Cambior [TSX:CBJ; AMEX:CBJ] continued to report weak earnings, much to the chagrin of shareholders.
The Big Winners
With the past two weeks of earnings reports starting to draw to a close, it's getting clear who the big winners were for the second quarter.
Foremost among this list from the smaller producers is Northgate Minerals, which Aug. 10 reported record quarterly earnings of $56 million, or 25 cents per share, on production of 76,000 ounces of gold and 18.1 million pounds of copper. Thanks to copper sales that realized an average price of $3.13/lb. for the quarter, the total full absorption cost of gold production at the company's Kemess South mine was negative $44 per ounce. Even after eliminating a special boost to earnings through an income tax recovery, Northgate's operational earnings were still $41 million, or 18 cents per share. Excluding the income tax issues, total first half earnings were 28 cents per share - which if duplicated in the second half would give Northgate a rock-bottom P/E of 6.5! In Friday trading, when most of the precious metals market took a hit due to a tumbling gold price, Northgate managed to stay in modestly positive territory.
In other news, Northgate management announced that it was progressing with a $21 million drill programme to advance its Young-Davidson project, and that public hearings on the permitting process for Kemess North should begin by late October. Assuming the permitting for Kemess North goes the way that Northgate wants, investors should look for a big pop in the stock once the company releases updated reserve information using current metal prices.
Another big winner was IAMGold. In its earnings report released before the bell Aug. 11, IAM reported record quarterly earnings of $29.2 million, or 17 cents per share on production of 158,000 ounces of gold at a cash cost of $290/oz. Actual earnings from operations were slightly lower, due to one-time events. Investors also had reason to cheer the solid exploration results from the company's 100% owned Quimsacocha project in Ecuador, which looks like it will be the next big gem in the IAMGold crown. One intersection of 108 metres averaged 16.2 g/t gold, 83.6 g/t silver and 1.3% copper.
Goldcorp investors found reason to celebrate when that company announced record earnings of $190 million, or 49 cents per-share, nearly double its year-earlier number, and much higher than analyst expectations of 35 cents per share. Production was 378,000 ounces at a cash cost of $123/oz. With the full absorption of Placer Dome's mines, CEO Ian Telfer said he expects production of 950,000 ounces for the second half of the year.
Earlier in the reporting season, Glamis Gold showed off solid earnings of $30.3 million, or 19 cents per share, on sales of 145,000 ounces of gold at costs of $209/oz The big news for Glamis was its confirmation of 2006 production of 620,000 ounces at costs of $190/oz - thanks to increased production and lower cost at the Marlin mine in Guatemala. Glamis also highlighted the likely development of the Penasquito project in Mexico. The company recently completed a revised feasibility study at the project, which takes into account a doubling of proven and probable gold reserves to nearly 10 million ounces.
Kinross Gold [TSX:K; NYSE:KGC] surged to a new 52-week high of C$14.56 days after announcing record second quarter earnings of $65.6 million, or 19 cents per share, on production of 385,000 gold-equivalent ounces. The company also announced its plan to go ahead with a $470 million development plan at its Paracatu project in Brazil, which will allow the mine to produce 557,000 ounces of gold at a cost of $230/oz between 2009 and 2013.
Although Barrick Gold's [TSX:ABX; NYSE:ABX] hedging practices have left many investors less than thrilled, the market seemed pleased with the company's recent announcement of record quarterly earnings of $459 million, or 53 cents per share. The company won kudos from investors for completely eliminating the hedge book from the operations it acquired from Placer Dome. It remains to be seen, however, how the market will react if Barrick decides to up its takeover bid for Novagold [TSX:NG; AMEX:NG].
The Losers
This quarter's earnings disappointments didn't come from a surprising bunch.
Cambior reported earnings per share of just 1 cent after adjusting for its sale of Carlota copper, missing consensus by 2 cents. Production of 129,000 ounces at a cash cost of $376/oz was also below analyst estimates, thanks to lower grades at Rosebel. With production expected to remain lower-to-flat over the next few years, and a stock that's perpetually in the bargain bin, Cambior continues to look like a cheap acquisition for a larger company willing to take the risk.
Golden Star Resources continues to search for a turnaround. After several quarters of poor results, the company reported earnings of $14.4 million or 7 cents per share. Investors shouldn't be fooled by these numbers, however, since the earnings were due to a $20 million gain from the sale of shares in subsidiary EURO Resources S.A. For the quarter, Golden Star sold 45,000 ounces at a cash operating cost of $448/oz. The company continues to make progress on the development of the Bogoso Sulfide Expansion Project, which management is fervently hoping will bring costs under control and help the company return to operational profitability.
Investors were less than thrilled with results from Eldorado Gold [TSX:ELD; AMEX:EGO]. Production from the company's Sao Bento mine in Brazil is due to expire shortly, and the new Kisladag mine is experiencing start-up problems. This caused a reduction in Kisladag's expected 2006 production to 70,000 ounces from 120,000 ounces. The company broke-even on the quarter, and most analysts expect that Eldorado is due for an only marginally profitable year. But with production at the Tanjianshan project in China slated to begin the fourth quarter, and the problems at Kisladag expected to fade away, investors should look forward to a solid 2007.
Yamana Gold shareholders weren't thrilled by that company's reported headline loss of $55.3 million, or 20 cents per share for the quarter. The results included several large one-time expenses, including a copper hedging loss of $11.4 million and a stock-based compensation expense of $34.6 million. Since reporting results before the open on Aug. 9, shares have dropped from the $11.30-range to close on Aug. 11 at $10.11. The drop may give investors a chance to do some bargain shopping, as Yamana highlighted its upcoming production spike. The company is expected to produce 630,000 ounces to 695,000 ounces in 2008 at a cash cost of negative $100/oz. This compares quite favourably with 2006 production of up to 472,000 ounces at a cost of $285/oz.
Finally, global powerhouse Newmont Mining [NYSE:NEM] left investors feeling flat after a slowdown led the company to trim its 2006 production estimates to 5.9 million to 6.2 million, down from 6.1 million to 6.25 million. Recently, the company's stock has also been held back by concerns over deadly protests at its Yanacocha mine in Peru, and the confiscation of some of its assets in Uzbekistan. Still, thanks to high gold prices the company announced second-quarter income of $161 million, or 36 cents per share.
Still to Come
While most quarterly earnings are in, Bema Gold [TSX:BGO; AMEX:BGO] and Nevsun Resources [TSX:NSU; AMEX:NSU] are slated to release results early next week. Look for Bema to provide more information and news on the planned development of Cerro Casale, and Nevsun to supply an eagerly awaited update on the progress of Bisha - as well as production results from the newly operational Tabakoto mine. |
