Kinross’ Tasiast pit gold mine in Mauritania.
A flurry of earnings results from three of Canada's largest gold miners show that this year's bullion boom is being reflected in major improvements across the industry's bottom line.
After years of decline, the price of gold has jumped 25 per cent since January as investors have sought refuge from slumping yields on savings accounts and bonds.
The rush to precious metals has given mining stocks a powerful boost. Shares of Barrick Gold Corp. and Kinross Gold Corp. have more than doubled since the start of the year, while Agnico Eagle Mines Ltd. (up 98 per cent) has also achieved eye-popping gains. Results released after the market closed on Wednesday offer hope that more gains may be ahead, although it also hinted at some potential problems.
Agnico Eagle was a standout, reporting profit of $19-million (U.S.) for the most recent quarter, nearly double the $10.1-million it generated in the same period a year earlier. The miner beat expectations for revenue and adjusted earnings and announced that it was boosting its dividend by 25 per cent (to 10 cents a quarter from 8 cents). It also said it had received the final permit necessary for construction to begin at its Meliadine gold project in Nunavut.
Barrick also reported a solid quarter, with profit of $138-million, or 12 cents a share, on revenue of $2.01-billion. While the earnings figures lagged forecasts, this quarter's bottom line was a major improvement from a loss of $9-million in the same period last year.
Perhaps most important, the miner continued to pay down its loans and said it remained on target to achieve its target of $2-billion in debt reduction this year. Its all-in sustaining costs, a measure of all the expenses involved in producing gold, fell to $782 an ounce from $895 an ounce a year before.
In contrast, Kinross disappointed, reporting a loss of $25-million for the quarter, or 2 cents a share, which was below forecasts. Still, that marked a significant improvement from the same period last year, when it lost $83.2-million, or 7 cents a share.
The miner said its Tasiast project in Mauritania will resume normal operations in August. The West African mine has been closed since mid-June because of a dispute with the Mauritanian government, which alleged that some expatriate employees at the site had invalid work permits.
Such production problems reflect, in part, the increasing difficulty in finding new gold deposits. Miners are being forced to go to more remote locations and work in more difficult environments.
Gold's supporters say global production of the metal is in long-term decline – a trend that may bolster the value of gold producers over the long haul.
But the great gold rally also has its skeptics. Investors in exchange-traded funds (ETFs) have accounted for most of the growth in demand for gold in recent months. Unlike jewellery buyers or central banks, ETF holders are a fickle crowd. They could decide to cash in their gains and dump the metal when the U.S. Federal Reserve begins to hike interest rates in earnest.
Miners themselves are staying wary. They have kept a tight grip on their wallets and refused to get caught up in public bidding wars for promising properties. They have typically done deals – notably Goldcorp Inc.'s $520-million acquisition of Kaminak Gold Corp. in May – by issuing shares rather than paying cash.
Euphoria is more in evidence among investors. They have driven gold producers' shares to lofty multiples of their forecast profits. Kinross trades for nearly 50 times its expected earnings for the year, while Agnico Eagle changes hands for more than 90 times.
Ian McGugan