Headline: Experts Say Low Gold, Copper Prices Hurt Mining Firms In 1st Quarter
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By Robert Ortega, Staff Reporter
DENVER -(Dow Jones)- Gold and copper prices, after heading south this
past fall and winter, are staying down as spring rolls around, boding
continued tough times ahead for companies mining either metal.
Largely because of the low prices, most gold and copper companies
expect to report lower earnings for their first quarter compared with a
year ago.
During the first quarter, gold prices averaged $294.90 an ounce on
the Comex division of the New York Mercantile Exchange, down 16.3% from
a year earlier, while average copper prices fell 33% to 77 cents a
pound.
Although gold recovered slightly in recent days, reaching $300 an
ounce on the Comex spot market, few analysts expect a return soon to the
$380 to $400 an ounce range that held most of last year. "So a key
question is how gold companies are rationalizing," said David
Christensen, a gold analyst at Merrill Lynch & Co.
Newmont Gold Co. (NGC) acted quickly by laying off hundreds of
workers earlier this year, he said, while Homestake Mining Co. (HM),
which is completing a merger with Plutonic Resources Ltd., has a lot of
cost-cutting opportunities.
For the first quarter, Christensen said he expects Newmont to report
earnings of 13 cents a share, compared with 21 cents a year ago.
Morgan Stanley & Co. analyst Doug Cohen also sees a
first-quarter-earnings decline for the company, to 15 cents a share from
the 21 cents a share a year ago. Newmont faces additional risk in the
current low-price environment because of its limited hedging program, as
well as questions about whether possible political instability in
Indonesia may affect its massive Batu Hijau mine there, he said. But he
added that he likes Newmont's combination of long-term growth in gold
reserves and low production costs.
Both Cohen and Christensen expect Homestake to post a loss, reversing
year-earlier earnings of 34 cents a share, including gains of 38 cents
from a sale and a payment from Newmont, which wooed away Santa Fe
Pacific Gold Co. from its merger agreement with the company. Christensen
pegs Homestake's first-quarter loss at 10 centsa share, while Cohen sees
it at six cents a share.
Low gold prices also have squeezed higher-cost operations. In
January, Pegasus Gold Inc. (PSGDF) filed for protection from creditors
under Chapter 11 of the Federal Bankruptcy Code.
Echo Bay Mines Ltd. (ECO), after laying off hundreds of workers last
year, slashing its exploration budget and suspending dividend payments,
said two weeks ago it will also defer $5.5 million in interest payments
on $100 million in debt.
But Christensen estimated Echo Bay will narrow its first-quarter loss
to nine cents a share from 12 cents a share a year ago,
He expects Battle Mountain Gold Co.'s (BMG) loss will widen to five
cents a share from four cents a year ago, while Cohen projects the
company will break even.
Cohen puts Placer Dome Inc.'s (PDG) earnings at two cents a share,
versus four cents a year ago, while Christensen's figure is three cents
a share.
Barrick Gold Corp. (ABX) remains strong, Morgan Stanley's Cohen said,
thanks largely to an aggressive hedging program that locked in
$400-an-ounce prices for its production for the next few years - and to
the potential for its Purina operation in Peru to become one of the
lowest-cost gold mines in the world, with cash costs of roughly $50 an
ounce in its first few years. He expects Barrick to enjoy an earnings
gain for the quarter, to 18 cents a share from 15 cents a year ago.
Earnings at Freeport-McMoran Copper & Gold Inc. (FCX, FCXA), hit by a
metals-price double whammy, should plunge to five cents a share from 31
cents a year earlier, Cohen said.
But Merrill Lynch & Co. base-metals analyst Daniel Roling said the
company is well-positioned to weather the low prices because of its
ability to increase production at its massive low-cost Grasberg mine in
Indonesia. He expects earnings of 10 cents a share for the quarter.
Among copper companies, Roling said Cyprus Amax Minerals Co. (CYM),
which has bitten the bullet by closing some of its higher-cost
operations and cutting other expenses, is also well-positioned going
forward. Because of those steps, as well as the low copper prices, he
expects the company to report a loss of 10 cents a share for the
quarter, versus year-earlier earnings of 28 cents, excluding 28 cents in
one-time gains.
The analyst also expects Phelps Dodge Corp.'s (PD) earnings to fall
to 65 cents a share from $2.12 a year earlier and Asarco Inc. (AR) to
report a 45-cent-a-share loss, versus first quarter 1997 earnings of 89
cents a share, excluding six cents a share in nonrecurring gains.
John Gross, editor of the Copper Journal, sees signs that copper
prices may rebound a bit in the near term since inventories have been
dropping in recent weeks. In 1997, as Asian economic woes cut demand for
copper in that market, production exceeded demand by 370,000 metric
tons, he noted.
But while some companies have mothballed planned new mines or
expansions, Gross said, enough new capacity is being added that the
production surpluses should increase each of the next three years.
- Robert Ortega; 201-938-5099
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