Morning Business Briefing

Battered miners pencil in new gold, copper, silver price estimates

The Globe and Mail

These are stories Report on Business is following Thursday, Aug. 1, 2013.

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Miners hit
Stung by massive writedowns and outsized losses, Canada’s big miners are rewriting the playbook and penciling in new metals price assumptions.

As The Globe and Mail’s Tim Kiladze reports, Barrick Gold Corp. today took a further hit of $8.7-billion (U.S.), leading to a second-quarter loss of $8.6-billion or $8.55 a share. It also scaled back its plans and cut its dividend. Excluding the charges, Barrick earned $663-million or 66 cents a share, down from $821-million or 82 cents a year earlier.

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That followed last night’s announcement by Kinross Gold Corp., which unveiled a $2.4-billion impairment charge and a loss of $2.5-billion or $2.17 a share. As well, it killed its next semi-annual dividend payment.

While there are various factors at play – Barrick, for example, is struggling with regulatory issues at its Pascua-Lama project in Chile – sinking prices are at the heart of the troubles for leading miners like Barrick and Kinross.

Barrick has thus revised its internal price assumptions, which it uses to test for impairment, to $1,300 an ounce for gold, $3.25 a pound for copper, and $23 an ounce for silver.

“We are confident our assets will generate substantially more economic benefits over time for our shareholders than these current valuation levels imply,” Barrick said in its earnings statement today.

“Although Barrick does not rely on higher prices to drive its business plans, we remain positive on long-term price fundamentals for these metals,” it added.

“With higher prices in the future, we would reassess the fair value of our high-quality, long-life assets such as Pascua-Lama, and could potentially reverse some of the impairment charges recorded.”

Both Barrick and Kinross are adapting to the new reality.

Said Barrick chief executive officer Jamie Sokalsky: “Over the past year, we have taken and are continuing to take a series of steps to reduce costs as part of our disciplined capital allocation framework, which allowed us to respond quickly to the new metal price environment. We have reduced 2013 budgeted capital and costs by about $2.0 billion which has offset the cash flow impact of the drop in gold and copper prices that has occurred this year.”

Said Kinross: “In response to the significant decline in gold price in recent weeks, Kinross has accelerated its Way Forward initiatives, and has undertaken a number of additional actions with the goal of further reducing costs and maximizing cash flow.”

Some analysts forecast that gold and copper prices are going to slip further still.

TransCanada moves ahead
TransCanada Corp. is pushing ahead with a $12-billion plan to ship 1.1-million barrels of western crude a day to eastern Canada, and joining with Irving Oil Ltd. to build a new deep-water export terminal off Saint John, N.B., the company said today.

After receiving commitments from shippers, TransCanada has increased the capacity of the project by 30 per cent from previous levels, an indication that western producers are keen to diversify their markets beyond the U.S. and are uncertain about prospects for a route through British Columbia to the west coast, The Globe and Mail’s Shawn McCarthy and Jane Taber report.

While producers will have the option to ship their crude to two refineries in Quebec or use ports in that province to export, TransCanada said it has formed a partnership with Irving to construct a new offshore facility that can accommodate the largest crude tankers, a move that would make it economical to access far-flung Asian markets.

Bombardier profit climbs
Bombardier Inc. posted a jump in second-quarter profit and revenue today, pumped up by its train operations.

The train-and-plane maker earned $180-million (U.S.) or 10 cents a share in the quarter, up from $147-million or 8 cents a year earlier. Adjusted profit, however, slipped to $158-billion or 9 cents from $167-million, also 9 cents.

Revenue climbed to $4.4-billion from $4.1-billion.

Both the transportation and aerospace operations chalked up a good quarter, said chief executive officer Pierre Beaudoin.

“The outlook for both groups is positive,” he said in a statement.

“Our record backlog of $65.5-billion, combined with our significant investments in new products, ensure solid growth in the years to come.”

Earnings flood in
Corporate earnings are flooding in fast and furious today, with reports from several other major companies.

Gildan Activewear Inc. posted a jump in third-quarter profit to $115.8-million (U.S.) or 95 cents a share, from $78.6-million or 64 cents a year earlier. It also projected full-year earnings per share of $2.67 to $2.70, a slight revision from its earlier forecast of $2.65 to $2.70.

Imperial Oil Ltd.’s second-quarter profit slipped to $327-million (U.S.) or 38 cents a share from $635-million or 75 cents.

Enbridge Inc.’s second-quarter profit climbed to $42-million (Canadian) or 5 cents a share from $8-million or 1 cent.

TMX Group Inc. earned $25.5-million (Canadian) or 47 cents in the second quarter.

Central banks stand pat
Like the Federal Reserve yesterday, Europe's central banks are standing pat today.

Both the European Central Bank and the Bank of England made no changes to policy today. Yesterday, the Fed also held the line, a reassuring sign to markets.

"Last month President Draghi shifted to a more dovish stance," chief currency strategist Camilla Sutton of Bank of Nova Scotia said of ECB chief Mario Draghi.

"Recent data have shown signs of stabilization, however the [euro] has also rallied close to 3 per cent since then, leaving the ECB likely torn between the improving signs in the economy and the impact of a strong currency."

At a news conference later, Mr. Draghi said little that was new, though he did make a projection.

"Despite efforts to avoid providing clarity on the ECB's forward guidance, Draghi did finally concede that rates will remain low until at least July next year," said market analyst Craig Erlam of British brokerage Alpari.

"However, he did caveat this with comments that suggested this date is not set in stone and can be changed. It was essentially a commitment to forward guidance that came with small print that we’re not meant to pay attention to. In other words, the forward guidance offered by the ECB remains pointless, as confirmed by the complete lack of reaction in the markets to these comments."

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