Cost-cutting miners shine despite range-bound gold prices

Sunny Freeman

July 27, 2017
4:55 PM EDT

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Canadian gold miners posted solid second-quarter profits driven by increasing efficiency at their operations rather than any stellar increase in the price of gold.

Toronto-based miners Barrick Gold Corp. and Agnico Eagle Mines Ltd. and Vancouver-based Goldcorp Inc. all surprised analysts with earnings that beat expectations as they continue to drive down their cost of sales.

Historically, the performance of gold companies tends to move in tandem with bullion prices, but the miners better-than-expected year-over-year results came even as the price of gold during the quarter remained virtually flat — up just three per cent over the year before.

Gold companies have been focused on driving down cash costs and paring their portfolios to deal with a years-long decline in the commodities market and those moves during bust times appear to be paying off as the cycle begins to make a more positive shift.

Goldcorp swung to a profit of $135 million in the second quarter ended June 30 from a loss of $78 million in the year earlier, when its biggest mine, Penasquito in Mexico faced a shutdown and slow restart.

The company produced 635,000 ounces of gold in the second quarter — an increase of four per cent over the same quarter last year — at $800 an ounce. It also further reduced its cash cost estimates for the remainder of the year, estimating all-in sustaining costs of $825, down from $850 per ounce.

“We’ve gone through site by site looking for efficiencies, not just costs, though we’ve knocked another $85 million in costs out of the system this year,” president and CEO David Garofalo said in an interview Thursday.

“We’ve actually looked for bottlenecks in our operations where we can realize efficiencies and improve the top line.”

Goldcorp has an ambitious plan to increase gold production by 20 per cent over the next five years as the company continues to shed non-core assets and invest money from those sales back into new development projects.

The company also announced that chief financial officer Russell Ball is leaving the company and will be replaced by Jason Attew, the miner’s senior vice president of corporate development and strategy.

At Barrick, net earnings soared to US$1.08 billion for the quarter ended June 30 from US$138 million a year ago, largely due to gains from selling interests in its Veladero and Cerro Casale projects. Gold production during the quarter was 1.43 million ounces at all-in sustaining costs of US$710 per ounce.

“We are maintaining discipline as we prudently invest in the business and continue to optimize the long-term value of the portfolio,” said president Kelvin Dushnisky.

Its majority-owned Acacia Mining Company has been a source of contention with the Tanzanian government which has implemented a precious-metals export ban and slapped it with a staggering US$190-billion tax bill on Monday, alleging  that it owes that much in back-taxes and penalties. Acacia disputes the assessment.

Production and cost guidance remained unchanged for the year despite the setback in Tanzania, though the company added it will wait for a revision of forecasts at Acacia, which accounts for six per cent of Barrick’s estimated 2017 gold production of between 5.3 million and 5.6 million ounces.

Earnings at the smaller, Canadian-focused Agnico Eagle saw the strongest beat among the three miners, reporting quarterly income of $61.9 million. On an adjusted basis, that amounts to 24 cents per share, far surpassing the 15 cents per share analysts were expecting.

The big earnings beat was driven both by higher gold production and lower cash costs as well as some non-cash gains. Agnico bumped up its production guidance for the year to 1.62 million ounces and lowered its all-in sustaining cost forecast to between $830 to $880 per ounce.

CEO Sean Boyd said the company is on track to meet its goal of 2 million ounces of production by 2020.

“That, combined with the projects moving ahead on schedule keeps us on track for our production growth goals.”

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