Earnings from Yamana Gold (AUY) and Barrick Gold (ABX), as well as the death of the merger between Barrick and Newmont Mining (NEM), are weighing on gold miners this morning.
Associated Press Barrick Gold reported a profit of 20 cents a share, beating forecasts for 19 cents a share, on sales of $2.63 billion. Analysts had expected $2.6 billion. Barrick also lowered its copper guidance. No mention was made of a merger with Newmont Mining in Barrick’s press release.
Yamana Gold, meanwhile, reported a profit of 2 cents a share, missing forecasts for 4 cents. It said it will focus on its Canadian and Argentine operations.
Morgan Stanley’s Brad Humphrey and team assess Yamana’s miss:
[Yamana's] 1Q14 results missed consensus but were in line with our estimates. Gold and copper output came in below our forecasts, offset by lower than expected expenses. Due to seasonality, [Yamana] typically reports a weaker 1H. Given April results provided, output is trending up in Q2. [Yamana] Shares could be weak initially on back of consensus miss but going fwd, output is expected to trend up QoQ and if successful acquiring 50% of Osisko, political risk profile improves, with the addition of this material, long life, low cost asset.
Cowen’s Adam Graf and Misha Levental
[Barrick] 1Q14 adjusted earnings of $0.20/share, slightly ahead of consensus, down from $0.92/share y/y. The decrease primarily reflects the impact of lower metal prices and lower gold sales volumes. Additionally, lower earnings reflect the impact of asset sales that occurred since the second half of 2013, including the sale of the Kanowna and Plutonic mines in Australia and its 33% stake in the Marigold mine in Nevada in 2014.
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Full-year guidance remains on track for gold at 6.0-6.5MM oz Au at AISC of $920- $980/oz. Copper production has lowered, however, to 410-440MM lbs Cu (from 470-500MM), at original cost guidance of $1.90-$2.10/lb Cu. Copper production was lowered due to a processing disruption at Lumwana; the failure is currently being assessed, with production expected to resume in 3Q14.
And of course, there’s no mentioning Barrick without talking about Newmont Mining, which ended merger talks with Barrick this week. Credit Suisse analysts Anita Soni and Robert Reynolds asses the state of the negotiations:
In our view the potential remains for a merger/take-over of [Barrick] and [Newmont Mining] (either friendly or hostile), with the potential synergies likely accretive to a Newco’s [free cash flow and net asset value]. Key hurdles may be the Newco’s size and the headquarters location…
We maintain our Neutral as we view [Newmont Mining] as fairly valued on NAV and OpCFa vs. peers. Positively, [Newmont Mining] provides peer leading FCF in 2015 and 2016 with a resolution of the Indonesia export ban. With maturing current operations, [Newmont Mining] will weigh external M&A against its internal opportunities (Merian, Conga and Ahafo expansion) to reinvest FCF. On the other hand, [Newmont Mining's] favourable medium term FCF outlook and potential synergies make it an attractive partner for [Barrick], in our view.
Shares of Barrick Gold have dropped 1.4% to $17.42, while Yamana Gold has fallen 2.4% to $7.46 and Newmont Mining is off 0.5% at $24.90. The Market Vectors Gold Miners ETF (GDX) has declined 0.7% to $24.14, while the SPDR Gold ETF (GLD) is down 0.3% at $124.51.
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