The following notes may help you make some trading decisions regarding the gold industry group. The data on eight high profile companies is taken from the research dept notes of BMO from the past two weeks. Note that of the eight stocks, only Gold Fields (NYSE:GFI), Kinross (NYSE:KGC), and IAMgold (NYSE:IAG) are rated Market Outperform, while the other five are rated Market Perform.
I feel this data can serve as a proxy on the industry for many readers who trade or monitor these particular stocks. The 12-month Price Targets [PT] are those of the BMO analyst. Trading for the goldminers Thursday, on one of the most negative trading sessions of the past several years, was relatively unremarkable. However, I noted that there was considerable late session strength in Barrick Gold (NYSE:ABX) and Agnico-Eagle Mines (NYSE:AEM), although both closed with modest losses of -025 pct and -0.34 pct respectively. Eldorado Gold (NYSE:EGO)/ELD had a strong day, up about +2.2 pct, as did IAG/IMG, which was also up +2.2 pct. KGC/K was weak, closing down about -2.0 pct.
The goldminer industry index closed down -2.9 pct to 142.64, but the technical support at 142 was not broken.
Agnico-Eagle Mines Ltd.
Market Perform Target: US$43.00 or C$45.50
• Agnico-Eagle reported Q2/07 net earnings of $37.8 million or $0.28/sh. After adjustments, EPS came in at $0.33, above the First Call Mean of $0.30 and our expectation of $0.28/sh. The quarter was better then expected primarily due to lower taxes, and higher than expected realized gold (2%) and zinc (8%) prices.
• The company reiterated 2007 production guidance of 240 koz gold; however, zinc production was downgraded by 7% as the company plans to mine lower grade (although economic) ore.
• The start-up of Lapa was delayed from Q4/08 to Q2/09. A development decision on Pinos Altos is expected later this month.
AngloGold Ashanti (NYSE:AU)
Market Perform Target: US$46.00 or C$48.70
• AngloGold Ashanti reported Q2/07 adjusted earnings of $82 million or $0.29/share, below our expectations for $0.42/share, the Reuters survey average of $0.36/share, and Q1/07 of $0.35/share.
• Production was 1.349 mmoz, ahead of Q1/07 production of 1.326 mmoz but below our expectations for 1.399 mmoz. Total cash costs were $333/oz, in line with Q1 but below expectations for $324/oz. The company provided Q2/07 guidance of 1.48 mmoz at $330/oz.
• The company also announced the retirement of CEO Bobby Godsell and the appointment of Mark Cutifani as his successor. Mr. Cutifani is currently COO of CVRD Inco. An Australian, his previous employers include Inco [COO], Sons of Gwalia (Managing Director), Normandy (Group Director, Mining and Development), and WMC.
Barrick Gold Corp.
Market Perform Target: US$36.00 or C$38.10
• Barrick reported Q2/07 adjusted earnings of $0.42/share, ahead of our estimate for $0.35/share. The adjusted result includes the impact of the $0.08/share hedge elimination and excludes the $0.03/share after-tax gain from the sale of investments. The First Call Mean was $0.42/share, but likely excludes the $0.08/share hedge charge.
• Production was 1.96 million ounces at $345/oz versus our forecast for 2.04 million ounces at $351/oz. Goldstrike, Lagunas Norte, and Cortez reported higher production and lower than expected costs. Veladero, Bulyanhulu, Granny Smith, and North Mara disappointed.
• At Pascua-Lama, cross-border agreements between the Argentinean and Chilean governments and sectoral permits remain to be finalized. The company indicated that it will not proceed to construction until all contractual and permitting issues are resolved.
Eldorado Gold Corp.
Market Perform Target: US$6.60 or C$7.00
• Eldorado reported earnings of $26.7 million or $0.08/share. Adjusted for forex gains, the result was $25.0 million or $0.07/share, above our expectation and the IBES Mean estimate for $0.05/share. Production was 98,970 ounces and cash costs were $287/oz.
• The company released the feasibility study results for its Efemçukuru project in Turkey. Start-up capital is estimated at $110 million, operating costs are $63/t, cash costs are $226/oz, and initial reserves are 1.2 mmoz grading 10 g/t.
• The Turkish Ministry of Environment received official notification on July 19 to shut down the Kisladag mine within 30 days. The mine is expected to close on August 20.
• The company has approved construction of the Vila Nova iron ore project. Capex is expected to be $32.7 million and the construction time is estimated at one year. Eldorado increased its ownership of the project from 50% to 75% by paying partner DSI Consult US$2.8 million and agreeing to finance current preproduction capex.
• CEO Paul Wright traveled to Turkey seeking clarification of the Court's injunction to close the heap leach operation. The company has not yet started any closure procedures. Eldorado does not expect to release a formal update until it reports on August 3.
• The Turkish elections were held and the results were in line with expectations. The AK Party is expected to hold onto its majority, with about 340 of the 550 seats. It remains short of the 66.7% majority required to change the constitution. The next hurdle is the election of the president.
Gold Fields Ltd.
Outperform Target: US$21.00 or C$22.25
• Gold Fields reported Q4/07 results. EPS, adjusted for gains and losses on foreign exchange, financial instruments, and exceptional items was $0.11 (ZAR0.75). We had forecast EPS of $0.12 (ZAR0.85), the average estimate from a Reuters survey of nine analysts was ZAR0.86, and Q3/07 adjusted EPS were $0.11 (ZAR0.83).
• Attributable production in the quarter was 1.015 million ounces compared to our estimate for 1.014 million ounces and ahead of Q3/07's 989,000 ounces. Total cash costs of $405/oz were slightly ahead of our forecast for $410/oz, and increased from Q3/07's $399/oz.
• The company has increased its capex estimates for Driefontein #9 (from R3.2 billion to R4.1 billion) and South Deep (R3.9 billion to R4.3 billion), and expects to spend US$1 billion in 2008. Approximately 60% of the budget is classified as sustaining, while the majority of project capex is allocated to the Cerro Corona development project and expansions at Tarkwa and South Deep.
• Gold Fields reached an agreement with JCI Ltd. and Randgold & Exploration Co. Ltd. (R&E) to acquire rights to property immediately east of the South Deep Gold Mine for a consideration of R400 million (approximately US$56 million) plus VAT.
• The contiguous ground, accessible using the existing infrastructure at South Deep, is estimated to contain an indicated resource of approximately 16.2 mmoz at a cut-off grade of 5 g/t.
• The agreement is subject to approval by a majority of JCI and R&E shareholders at meetings during the last week of September. Irrevocable undertakings of support have been received, representing 57% of JCI shares and 52% of R&E shares.
Outperform Target: US$10.40 or C$11.00
• IAMGOLD released the latest results from its exploration program at Rio Falso Sur and Loma Tasqui satellite zones at Quimsacocha in Ecuador. The zones are located two to four kilometres south of the main zone. The results are part of a $2.7 million exploration program in which 5,265 metres of diamond drilling was conducted in the first half of 2007.
• The intersections for the reported nine holes were all sub-economic, but the company remains encouraged that the holes confirmed the presence of strong hydrothermal alteration. It emphasized similar results had been encountered prior to the discovery hole at the main zone in August 2004. The H2/07 budget is an additional $2.7 million.
• IAMGOLD provided an updated resource estimate for its Buckreef project in Tanzania. Measured and indicated resources now total one million ounces (16.7 mmt grading 1.9 g/t). The additional 88koz represent a 9% increase from M&I resources reported at year-end.
• The company also released drill results from a newly identified target at the project. The results, from 14 holes, yielded a weighted average intercept of 3.8m grading 4.39 g/t.
• The company has budgeted $3.2 million for exploration at Buckreef through the remainder of 2007 and plans on conducting 15,000m of aircore drilling, 7,000m of RC drilling, and 1,975m of diamond drilling. The program is expected to focus on the newly identified prospect; further definition of the Buckreef, Bingwa and Tembo areas; and reconnaissance drilling along the Rwamagaza Greenstone Belt.
Kinross Gold Corp.
Outperform Target: US$17.70 or C$18.75
• Kinross reported Q2/07 EPS of $0.09/share, ahead of our expectations for $0.06/share, but below the First Call Mean of $0.10/share.
• Production was 439,783 ounces, ahead of our estimate for 403,507 ounces and Q1/07's 389,394 ounces. Fort Knox, Round Mountain and La Coipa exceeded expectations.
• Cost of sales were $348/oz, but include a $16/oz adjustment associated with accounting for Bema's bullion inventory. We had forecast $338/oz, versus Q1/07's $328/oz.
• The company has increased its capex estimate for Kupol to $700 million from $600 million and its gold equivalent cost estimate to $225/oz. The project is approximately 67% complete and appears on track for a mid-2008 start-up.
• Third-party appeals of certain permits have delayed the Buckhorn project. The estimated start date has been delayed until H2/08. Physical construction is approximately 52% complete.
Newmont Mining Corp. (NYSE:NEM)
Market Perform Target: US$44.00 or C$46.60
• Newmont reported a Q2/07 loss of $2.062 billion dollars. Adjusting for the writedown of the Merchant Banking goodwill, the closure of its hedge book and other one-time items, the result is $107 million or $0.24/share, slightly below our comparable EPS estimate of $0.25/share but ahead of IBES Mean estimate of $0.22/share.
• Equity sales were 1.25 million ounces, in line with our expectation for 1.21 million ounces, but down from Q1's 1.34 million ounces. Costs applicable to sales were $433/oz, above our forecast $415/oz and Q1's $421/oz due to higher costs at Yanacocha.
• The company is maintaining its guidance for the year (5.2-5.6 million ounces at $375-$400/oz), but Phoenix in Nevada remains a risk to this forecast.
• Newmont appointed Russell Ball to the position of Senior Vice-President and CFO, replacing Richard O'Brien, who is now CEO. Randy Engel (Corporate Development) and Guy Landsdown (Project Development and Technical Services) were also promoted to Senior Vice-Presidents.
• The Chief Operating Officer role remains unfilled, but the company expressed confidence in the strength of its four Regional Vice-Presidents.
• Buenaventura reported Q2/07 results at Yanacocha (51%-NEM). Gold production of 302koz (100% basis) was below our forecast for 334koz and Q1/07's 418koz. Cash costs of $464/oz were also higher than forecast. However, the company reiterated 2007 guidance of 1.6 million ounces at $340–360/oz.
There is also news from Ecuador that may impact Aurelian [TSX:ARU]
Ecuador Names New Deputy Mining Chief
• New oil and mines minister Galo Chiriboga named Jose Serrano as the new deputy mining chief.
• Mr. Serrano replaces Jorge Jurado, an environmentalist who had sought tighter controls on the mining sector and was drafting an overhaul to the country’s mining law. Mr. Serrano has previously served as a minister and will be responsible for defining policy and granting concessions.
• President Rafael Correa has suggested revising the mining law to impose new royalties and increase state control. Elections for Ecuador’s 130-member assembly, which is expected to rewrite the country’s mining laws, are scheduled for September 30.