A deal combining Newmont Mining (NEM +2.5%) and Barrick Gold (ABX +0.2%) isn't dead, especially if NEM’s Indonesia woes drag on, J.P. Morgan analysts say.
NEM stopped processing at Indonesia's Batu Hijau mine in early June as storage facilities reached full capacity, and it could come back to table with ABX if it loses confidence in being able to access Batu Hijau’s cash flow, JPM says.
The firm sees the potential upward revisions to guidance for regions excluding Indonesia if Q2 is strong, but this would be offset by the worse outlook for Batu Hijau.
Earlier: Newmont Mining up on reports of increased investor pressure for break-up.
It's a good idea to have exposure to gold stocks in one's portfolio, say JPMorgan analyst John Bridges and team, but beware of sector plays (GDX -1.3%), and instead pick and choose carefully.
Goldcorp (G +0.1%) is a "simple decision stock," says the team, thanks to its strong balance sheet, growth profile, and disciplined management. Names like Barrick (ABX -1.2%), Newmont (NEM +1.1%), and Kinross (KGC -1.9%) would fare better in a gold bull market, but today's "back-to-basics phase" means valuations are driven by strong operations and accretive deals.
Another theme is to own players with operations in the safest locations, an idea paying off for Agnico (AEM +0.7%), but the team also recently initiated B2Gold (BTG +1.1%) with positive coverage on the idea some companies can learn how to operate successfully in "more complex locations."
Another favorite is laggard Buenaventura (BVN -0.5%) which is likely to see improved results in H2.
Beaten-up gold miner stocks are strong across the board as precious metal prices move sharply higher and take out key technical resistance levels; Comex gold jumped $41.40 (+3.3%) to settle at $1,314.10/oz., the highest level since April 14, and silver added $0.87 (+4.4%) to end at $20.65/oz..
Barrick Gold's (ABX +1.5%) African Barrick (ABGLF) unit is accused of bribery over cash payments to Tanzanian government officials as part of a process to buy land near its North Mara gold mine, WSJ reports.
An anonymous person says the payments were bribes to officials; ABX and its unit say the payments were not bribes and were legitimate payments for expenses and allowances tied to an agreement with the Tanzanian government.
China's largest gold mining company, China National Gold, is on the hunt for global acquisitions and partnerships, and recently talked about potential partnerships with Barrick Gold (ABX +0.3%), President Xin Song says.
Both parties are looking for potential opportunities jointly, Song says, but those are not likely to include an investment in the Pascua Lama mine ABX has put on hold amid cost overruns and environmental demands from Chile's government; the the project has several challenges, including its high elevation, its permitting troubles and high capital expenditure.
China National is no longer in talks with Ivanhoe Mines (IVPAF) on African investment, Song says.
Barrick Gold (ABX +0.8%) is higher despite UBS' move to lower its target price for the shares to $18.50 from $21.75, citing a lack of fresh demand for gold coupled with the improving U.S economy that will result in gold remaining in a range-bound state.
UBS thinks the recent gold price push has arisen mostly from short-covering rather than the emergence of new buyers, and believes the Fed "will not alter their tilt toward tapering nor interrupt their debate about when to tighten and how quickly" given the emergence of encouraging U.S. economic data points.
The firms forecasts gold prices declining from $1,300/oz. to $1,200/oz. in 2015.
Barrick Gold (ABX -0.9%) CEO Jamie Sokalsky tells FT the company has learned from its mistakes, including the aborted acquisition of Newmont Mining and the failure of its Pascua-Lama project.
Sokalsky plays up the potential for ABX to grow on the back of its gold discoveries in Nevada, and says that even without a merger ABX will still look for ways to co-operate in Nevada with Newmont.
Sokalsky also says it will take a more gradual approach to growth after shelving its attempt to build the huge Pascua-Lama gold mine in South America, and the change of emphasis shows how miners have been forced to temper their ambitions because of weak gold prices.
Citi sees GG as one of the few large gold producers set to deliver meaningful low-cost production growth over the next several years, and management continues to expect positive free cash flow beginning in Q4 at $1,200/oz. gold; the firm thinks ABX is in a better position to manage free cash generation after divesting high-cost assets, focusing on cost reductions and dialing back major project spending; NEM expects to generate positive free cash flow in 2014 at $1,250/oz. gold and has done a good job managing costs and dialing back capex.
The firm slaps Sell ratings on Gold Fields (GFI -0.7%), Harmony Gold (HMY +1.1%) and Sibanye Gold (SBGL +1%).
The reported agreement would last six months during which time ABX would provide project details to the communities for corroboration with experts, then enter a dialogue phase that could last "two or three years" and may involve international observers and include the payment of an "indigenous royalty."
June gold fell to its lowest level in 15 weeks, settling 2% lower $1,265.50/oz., as "everywhere the investor looks, he sees nothing but a negative for gold today." Silver slipped 1.8% to end at $19.07/oz.
Also a factor is a round of stronger U.S. economic data showing a surprise increase in durable goods orders, improved housing data and rising consumer confidence, which is providing a lift to stocks; the expiration of June gold options also is adding to market volatility.
Precious metals miners are among the day's weakest stock performers: ABX -3.4%, GG -3.8%, NEM -3.1%, SLW -3.4%, KGC -3.8%, AUY -4.1%, AU -6.5%.
ABX’s plans in Nevada include working on a study for its Goldrush discovery, examining the potential for deeper mining at the nearby Cortez Hills mine and considering an expansion at the Turquoise Ridge mine; also, it is investing more in early-stage projects owned by exploration and development companies.
Sokalsky says merger talks with Newmont Mining (NEM -2.9%) are “finished" and ABX is focused on its strategy as a stand-alone entity, but remains interested in looking for ways to cut costs by cooperating with NEM in Nevada, where the companies run multiple operations near each other.
The suit, filed with the Ontario Superior Court of Justice, alleges ABX described Pascua-Lama as a feasible and highly economic project due to the low cost to construct the mine and produce gold and silver from it, and that the company knew or should have known it would need to overcome significant obstacles.
Individual defendants named include CEO Jamie Sokalsky and predecessor Aaron Regent.
For Barrick Gold (ABX -1.4%) to even consider merging with Newmont Mining (NEM -1.1%) makes Mackie Research analyst Barry Allan wonder if ABX has "lost its mojo."
ABX and NEM may have overlapping assets that could be managed more efficiently under one roof, but Allan thinks that’s where the logic of a merger ends; ABX should be looking instead at Goldcorp (GG -0.1%), which Allan considers "the only senior [miner] that seems able to develop a growth profile."
Allan rates ABX a Sell, noting that ABX cut its 2014 production guidance as a result of asset sales and lower production at key mines, and that the company is focused on cost control and cash flow maximization, not growth.