The share prices of major gold producers plunged to multi-year lows following actions of the central banks in the U.S. and Japan that pushed down the gold price and clouded producers’ third-quarter results.
In the last week of October the U.S. Federal Reserve ended its six-year-long quantitative easing program. But in a surprise move, the Bank of Japan said it would ramp up its bond buying to spur economic growth. The announcements sent the U.S. dollar soaring, while the spot price for gold tumbled to a four-year low of US$1,171.60 per oz. (At press time it’s even lower at US$1,144 per oz.)
“Gold price weakness is the driving force behind the sell-offs and many producers have all-in sustaining costs around the current metal price,” Desjardins’ analyst Michael Parkin said in an emailed response.
Here’s a list of selected gold miners that sank to new depths:
Goldcorp (TSX: G; NYSE: GG) reported a 63% drop in its third-quarter adjusted earnings of US$70 million, or US9¢ per share, also missing the US18¢ per share that analysts on average had expected.
Impacting profits were lower metal prices and gold sales, higher production costs and a US$36-million non-cash reduction in the value of low-grade stockpile at the Penasquito gold mine in Mexico, writes Cowen and Co. analyst Adam Graf.
During the quarter, Goldcorp produced 651,700 oz. gold at all-in sustaining costs of US$1,066 per oz.
The company reiterated its 2014 production and all-in sustaining cost guidance of 2.95 million to 3.1 million oz. gold at US$950 to US$1,000 per oz. It expects to come in at the lower end of both targets.
Goldcorp declined on the quarterly results, released on Oct. 30, and slid the next day to a 52-week low of $19.16 before closing at $21.15 — its lowest level since October 2008. Goldcorp has a $17.2-billion market capitalization, making it the largest Toronto-listed gold producer.
Barrick Gold (TSX: ABX; NYSE: ABX) surpassed analyst expectations with adjusted earnings of US$222 million, or US19¢ per share, in the third quarter. But this was below the adjusted US58¢ per share earned a year ago.
The decrease came from weaker gold and copper sales volumes and lower realized metal prices, partially offset by lower costs.
Barrick churned out 1.65 million oz. gold at all-in sustaining costs of US$834 per oz. This led the major to trim its cost guidance for the second time this year to US$880 to US$920 per oz., from US$900 to US$940 per oz. previously. It also narrowed its full-year output guidance to 6.1 million to 6.4 million oz.
“While operating stability is a key platform for the company, the narrative of a high-debt load, lack of meaningful near-term catalysts and unclear corporate strategy should likely keep a ceiling on stock price outperformance at this juncture,” Raymond James analyst Phil Russo notes.
On Oct. 31, the stock fell to a 52-week low of $12.80, before closing at $13.39 — its lowest point in more than two decades. Barrick has a $15.6-billion market cap.
Agnico Eagle Mines (TSX: AEM; NYSE: AEM) failed to impress investors with its quarterly results.
Adjusted profits were US$4.2 million, or US2¢ per share, both below the analyst consensus of US15¢ per share and last year’s US35¢ a share. A lower realized gold price and higher exploration results — mainly at the Amaruq gold prospect in Nunavut — contributed to the miss.
Quarterly production was 349,300 oz. gold at total cash costs of US$716 per oz., net of by-products. Agnico raised its 2014 production guidance to 1.4 million oz., from 1.35 to 1.37 million oz. previously. All-in sustaining costs for the year remain at US$990 per oz., net of by-products. It bumped its 2015 output forecast to 1.6 million oz. on the back of strong operating performance.
“We believe the market will look through the relatively weak third-quarter 2014 earnings to the expectation for a strong fourth-quarter 2014 and 2015,” Desjardins’ Parkin comments in a note.
On Oct. 31, Agnico shares sank to a new 52-week low of $25.05, before settling at $26.56. The company has a $5.6-billion market cap.
Yamana Gold (TSX: YRI; NYSE: AUY) swung to a loss on the back of lower revenue and metal sales.
Adjusted net loss was US$12.5 million, or US1¢ per share, compared to an adjusted profit of US9¢ per share in the third quarter of 2013. Analysts on average had expected adjusted earnings of US6¢ per share.
Yamana recorded a US$668.3-million non-cash impairment charge due to operational challenges at its C1 Santa Luz, Ernesto/Pau-a-Pique and Pilar projects in Brazil, and a US$329.5-million non-cash tax charge related to the Chilean tax reforms.
The miner generated 391,277 equivalent oz. gold at improved all-in sustaining cash costs of US$807 per oz. On a gold-equivalent basis, it expects 2014 production of 1.4 million to 1.42 million oz., at all-in sustaining costs of US$825 to US$875 per oz.
“The continued difficulty at the Brazilian growth projects is disappointing. However, the focus on cost reduction and profitable production at existing operations is encouraging,” BMO analyst David Haughton writes.
On Oct. 31, Yamana reached a 52-week low of $4.29 before closing the day at $4.49, its lowest level since 2005. The miner has a $3.9-billion market cap.
Kinross Gold tumbled to a $2.35 yearly low before ending October at a 13-year low of $2.41. Kinross is set to release its third-quarter results on Nov. 5. It has a $2.8-billion market cap.
Gold outlook
Despite the weaker bullion price, some market participants believe the long-term fundamentals for gold remain strong.
“During most of this year, debate over when and how the U.S. Federal Reserve will begin to raise interest rates helped fuel the downward pressure on gold price, and we’re seeing that today,” Goldcorp’s CEO Charles Jeannes said on a recent conference call. “I believe that this focus on short-term gold price catalyst ignores an important trend of much greater long-term importance.
“To put it simply, our industry is not discovering as much gold as it once did, despite a significant increase in exploration investment. As such, it’s reasonable to conclude that global gold production is facing a sustained multi-year decline … but positively impact the supply and demand fundamentals, and therefore the price of gold.”
Analysts at Desjardins forecast the bullion will average US$1,350 per oz. from 2015 to 2017. However, BMO analysts have a more conservative view. They expect the metal to average US$1,190 per oz. in 2015, before moving into the mid-$1,200 range in the next three years.
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