CHICAGO, June 14, 2013 /PRNewswire/ -- Today, Zacks Equity Research discusses the U.S. Metals & Mining, including Barrick Gold Corporation (NYSE: ABX-Free Report), Goldcorp Inc. (NYSE: GG-Free Report), Newmont Mining Corporation (NYSE: NEM-Free Report), Kinross Gold Corporation (NYSE: KGC-Free Report) and Agnico Eagle Mines Limited (NYSE: AEM-Free Report).
Industry: Metals & Mining
A combination of current mine production, recycling and draw-down of existing gold stocks held by governments, financial institutions, industrial organizations and private individuals, constitute the annual gold supply.
In the first quarter, mine production was at 688 tons, up 4% year over year and 2% above the five-year quarterly average of 671.9 tons. Production increased in the Dominican Republic fueled by Barrick Gold Corporation's (NYSE: ABX-Free Report) Pueblo Viejo mine and in China. Growth was also noted across several mines in Canada and Brazil. Goldcorp Inc.'s (NYSE: GG-Free Report) Penasquito mine continued to ramp up production in Mexico.
Recycling of gold contributed 366.6 tons to total supply in the first quarter, 4% lower year over year, the fourth consecutive quarter of annual decline. This was due to reduction in the available supply of gold and economic factors. Overall, gold supply increased a meager 1% to 1,051.6 tons.
Performance of Gold Companies
As we delve into the March-end quarterly numbers of the gold companies in our coverage – Barrick Gold, Goldcorp, Newmont Mining Corporation (NYSE: NEM-Free Report), Kinross Gold Corporation (NYSE: KGC-Free Report) and Agnico Eagle Mines Limited (NYSE: AEM-Free Report), among others, we see earnings being hampered across the board by decline in average realized gold prices.
Shares of Newmont, Barrick Gold, Kinross, Goldcorp, Agnico Eagle and Harmony Gold hit their 52-week lows in the April-May timeframe driven by the sudden drop in gold prices, first quarter results and trimmed guidance. Furthermore, the companies are also riddled with their individual operational issues. Barrick's stock has fallen under pressure since the April 10th announcement that the company is suspending construction at its Pascua-Lama mine in Chile, in response to a court order from a Chilean court citing environmental concerns.
The price decline added to the woes of the industry that is already grappling with rising costs, labor issues, strikes, delays and/or the cancellation of projects. This has put gold miners on the defensive, forcing them to reassessing and cutting costs. Companies like Barrick and Agnico-Eagle have trimmed down their cash cost guidance for 2013 in order to remain profitable.
If prices fall further, margins will be constrained as the price of gold closes in on the cost per ounce of the companies. Analyzing the all-in sustaining costs (total costs associated with producing gold), 2013 guidance of Barrick Gold, Newmont, Kinross, Goldcorp and Agnico Eagle ranges from $950 to a maximum of $1200 per ounce.
Barrick, Harmony, Goldcorp, Newmont have decided to curtail their capital spending for the year. According to reports, Barrick Gold is contemplating to sell three of its Australian mines and its oil and gas unit -- Barrick Energy and Kabanga, its 50% owned nickel project in Tanzania to offload underperforming assets.
The key to stay afloat in these turbulent times is to identify and reduce discretionary expenses wherever possible, trim capital spending, defer new capital development programs, divest underperforming assets and cut dividends. The companies should judiciously proceed on only low-risk, high-return brownfield and the best Greenfield projects.
In the falling gold price environment, companies with major projects may require additional debt to complete them. Miners with lower costs, lower levels of debt, and with recently completed new mine development will be able to sustain themselves.
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