Canada’s largest gold producers both reported second quarter results on Thursday, and while Barrick Gold Corp.’s (NYSE:ABX) were much better than rival Goldcorp Inc.’s (NYSE:GG), the latter’s C$1.5-billion purchase of Gold Eagle Mines Ltd. (OTC:GEAFF) drew much of the attention.
Gold Eagle’s roughly C$150-million in cash and ownership of the Bruce Channel Discovery exploration project near Red Lake in Ontario, where Goldcorp is the main player, may not add resources in the near future, but it is nonetheless a potential multi-million deposit, noted UBS analyst Brian MacArthur.
In a note, he said:
Furthermore, given its location Goldcorp should be able to achieve synergies with its current operations.
Mr. MacArthur cut his price target on Goldcorp shares to $48 from $53 and revised his 2008 and 2009 earnings per share [EPS] estimates downward to reflect updated production, costs and dilution from the Gold Eagle deal. He also trimmed his target on Barrick to $54 per share from $57 and made similar EPS revisions.
RBC Capital Markets analyst Michael Curran, who cut his price target for Goldcorp from $50 to $47, said the strategic location and existing operations make the probability of a competing bid for Gold Eagle low.
Credit Suisse’s Anita Soni noted that while the second quarter was indeed challenging for Goldcorp, which lowered its 2009 production guidance, it continues to be her top pick among senior or near-senior producers with a $50 target price. The analyst pointed to its 60% production growth and co-product costs of $415 per ounce that will fall to $344 in the next five years.
Ms. Soni trimmed her price target on Barrick from $58 to $56, but upgraded it to “outperform” based on valuation, noting that the shares offer a good entry point given the benefits from an expected fall rally for gold prices.
Canaccord Adam’s analyst Steven Bulter maintained his $62 price target on Barrick shares, saying that despite the healthy returns implied by recent market volatility and a pullback in the gold sector, he sees even higher potential returns from the company’s peers.