A Q3 financial review of Canada’s largest gold producers

VANCOUVER — The Northern Miner presents a roundup of third-quarter results from Canada’s three largest gold producers by market capitalizatio n: Barrick Gold (TSX: ABX; NYSE: ABX); Agnico Eagle Mines (TSX: AEM; NYSE: AEM); and Goldcorp (TSX: G; NYSE: GG). The review summarizes financial results, and highlights quotes from management and analysts.

Barrick Gold

Barrick Gold’s Cortez pit, looking north. The company had a $22-billion market capitalization at press time, making it Canada’s largest gold producer by market cap and gold output. Credit; Barrick Gold.

Barrick reported third-quarter gold production of 1.24 million oz. at all-in sustaining costs (AISCs) of US$772 per ounce. The company cut the upper end of its full-year guidance, which now sits between 5.3 and 5.5 million oz. at AISCs from US$790 to US$810 per ounce.

Barrick generated adjusted earnings per share (EPS) of 16¢ and generated US$225 million in free cash flow (FCF). The company finished the quarter with US$2 billion in cash and equivalents, and has US$1 billion in long-term debt.

Management noted that its goal of getting AISC below US$700 per oz. will be “a longer process than we would have originally envisioned” due to delayed technology rollouts and productivity enhancements, and cost inflation from suppliers.

Barrick also provided details on a fifty-fifty economic benefit agreement with the Tanzanian government pursuant to its 63.9% equity stake in Acacia Mining (LON: ACA). The company said the government’s share would come from a 16% free-carried interest, royalties and taxes.

Barrick shares have traded in a 52-week range of $18.52 to $27.19 per share, and closed at $18.87 at press time. The company has 1.2 billion shares outstanding for a $22-billion market capitalization.

Kelvin Dushnisky, president, Barrick Gold: “Production levels were expected to be lower and cost higher in the quarter relative to what we expect to end the year. So we’ve narrowed our gold production and cost guidance ranges to reflect our latest expectations. We continue to focus on delivering positive free cash flow, and [keeping] our debt reduction on track.”

Tony Lesiak, analyst, Canaccord Genuity: “Management forecasts improved production in [the fourth quarter]. Barrick must maintain its financial discipline and continue to focus on margins [quality over quantity] in the face of a declining production profile to maintain its premium.”

Andrew Kaip, analyst, BMO Capital Markets: “Given the dispute between the government of Tanzania and Acacia, and uncertainty around the possible outcome, we do not expect Barrick shares to outperform near-term. Operating cash flow and free cash flow … were slightly below expectations, as cash flow estimates were affected by an unfavourable working capital adjustment.”

Tanya Jakusconek, analyst, Scotia Capital Markets: “We view [the results] as neutral. Barrick’s total cash costs and AISCs came in 2% lower and 2% higher, respectively, versus our estimates. This resulted in overall earnings generally in line with our estimate and consensus.”

Agnico Eagle Mines

Agnico Eagle Mines’ La Ronde gold-silver mine in northwestern Quebec. Credit: Agnico Eagle Mines.

Agnico reported 454,000 oz. in gold production during the second quarter at US$789 per oz. AISCs. The company boosted its full-year guidance for the second consecutive quarter to nearly 1.7 million oz., while expected AISCs were cut to between US$820 and US$870 per ounce.

Agnico registered a 28¢ adjusted EPS and generated US$49 million in negative FCF largely due to development and construction expenditures at its Meliadine and Amaruq projects in Nunavut.

The company reported a quarter-end cash balance of US$856 million and US$1.5 billion in available credit, and US$1.37 billion in long-term debt. Agnico also increased its dividend by 10% to 44¢ per share.

The company shares have moved in a 52-week range of $46.91 to $71.15 per share, and closed at $58.08 at press time. It has 232 million shares outstanding for a $13.5-billion market capitalization.

Sean Boyd, president and CEO, Agnico Eagle Mines: “It was a very strong quarter driven by good, solid performances across all of the mines, but particularly at our LaRonde mine, which has been producing gold since 1988. We recently celebrated our 60th year in business and I would suggest that we’re probably in the strongest position we’ve ever been to drive cash flow and production and manage our costs over the next several years.”

Canaccord’s Lesiak: “Agnico continues to justify its valuation premium with another exceptional operating result. Gold production … well exceeded our estimate and prevailing guidance, while total cash costs were also better than anticipated. It remains in a very solid financial position.”

BMO’s Kaip: “As expected, the strong production beat upped 2017 guidance and beat our earnings expectation. We expect shares of [Agnico] to outperform on these results. Higher production was driven primarily by grades and tonnes at LaRonde and incremental beats across the portfolio.”

Scotia’s Jakusconek: “Agnico’s production and costs came in well ahead of estimates.  Focus remains on the development of the Nunavut platform (Meliadine and Amaruq) including obtaining key permits for Amaruq (expected in 2018).”

Goldcorp

Goldcorp’s Red Lake gold mine in Red Lake, Ontario. Photo by Goldcorp.

Goldcorp produced 633,000 oz. gold in the second quarter at US$827 per oz. AISCs. The company has 2.5 million oz. full-year guidance at AISC estimates of US$825 per ounce. Goldcorp had an 8¢ adjusted EPS and negative US$19-million FCF. It has US$2 billion in long-term debt.

On October 18, the company closed the sale of its San Nicolas copper-zinc project to Teck Resources (TSX: TECK.B; NYSE: TCK) for US$50 million.

Goldcorp said construction of surface infrastructure to develop the exploration ramp at its Borden gold project in Ontario is complete. Meanwhile, the company also expects a prefeasibility study on its NuevaUnion joint venture with Teck in first-quarter 2018.

Goldcorp shares have traded in a 52-week range of $15.56 to $23.35 per share, and closed at $17.15 at press time.

The company has 865 million shares outstanding for a $14.9-billion market capitalization.

David Garofalo, president and CEO, Goldcorp: “We’re now turning our attention exclusively to our existing operations and on the execution of what we believe is the most substantial pipeline in the gold industry. This means that we expect our harvest’s strong return from existing operations over the next five years, while we prepare the strongest investment cases possible for our next generation of large-scale opportunities.”

Canaccord’s Lesiak: “Goldcorp had a solid quarter and reported adjusted EPS modestly below our estimate, and consensus, of 10¢. Goldcorp largely replaced reserves at [its] existing operations. Despite the near-term production decline at Red Lake, management remains optimistic in a [300,000 oz.] production profile with aggressive cost cutting and a move to bulk mining, helping to bring cash costs materially lower.”

BMO’s Kaip: “We continue to be constructive on Goldcorp’s longer-term outlook. However, in our view, the shares are unlikely to outperform the peer group until several key catalysts are delivered, which we do not expect until late 2017.”

Scotia’s Jakusconek: “The focus for the market is on the company achieving its 2017 operating targets; through three-quarters we believe it is tracking well to meet full-year guidance. It reported an in line quarter on the earnings front, with gold production in line and strong by-product contribution helping with the lower unit costs.”