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KITCO NEWS RECAP: Major North American Producers Report 2Q Results

By Allen Sykora of Kitco News
Friday August 2, 2013 11:00 AM

(Kitco News) - Earnings results of the major North American gold-mining companies took a hit during a second quarter when the spot price for the metal fell 23% during that time.

Miners were already under pressure to control rising costs, but the sharp drop in gold prices only intensified the focus on earnings results. Market participants no doubt wanted to see all-in sustaining costs to gauge whether companies might cut back production or hold off on new projects, affecting supply. The all-in costs are a still-new metric developed in conjunction with the World Gold Council to better reflect the cost of mining gold, including sustaining capital, exploration and general expenses.

“Of course, the one thing we cannot control is the gold price,” said J. Paul Rollinson, chief executive of Kinross Gold Corp. “As everyone knows, the gold price was highly volatile during the second quarter, falling from a high of $1,600 per ounce on April 1 to below $1,200 on June 28, a swing of over $400. This has created tremendous uncertainty for our industry.”

A few themes emerged in the second quarter earnings, including impairment charges because of the lower prices, miners announcing efforts to cut operating and capital costs and some either suspending or reducing shareholder dividends.

A summary of the earnings releases is below.

Barrick Gold Corp.

The world’s largest gold producer reported a massive $8.7 billion impairment charge for the second quarter driven largely by a significant decrease in long-term metal price assumptions. Of this, $5.1 billion was for its large Pascua-Lama project on the border of Chile and Argentina. There was also a $500 million loss on the sale of Barrick Energy.

As a result, Barrick Gold Corp. (NYSE, TSX: ABX) reported a net loss of $8.56 billion, or $8.55 a share, compared to a profit of $787 million, or 79 cents, in the comparable quarter of 2012. Otherwise, adjusted net earnings were $663 million, or 66 cents a share.

Jamie Sokalsky, president and chief executive officer, called the operating results “very strong,” with gold production rising to 1.81 million ounces from 1.74 million in the year-ago period, and copper production up to 134 million pounds from 109 million. Still, total revenue fell to $3.2 billion from $3.24 billion in the lower price environment.

The company reported a realized gold price of $1,411 an ounce and copper price of $3.28 a pound for the quarter.

Barrick listed second-quarter all-in sustaining cost at $919 an ounce, down from $1,061 a year ago. For the full year, Barrick projects all-in sustaining costs between $900 and $975 an ounce.

“The bulk of our expected 2013 gold production is at all-in sustaining costs well below current spot levels, and for those operations that are not generating positive cash flow, we will change mine plans, suspend, close or divest them,” Sokalsky said.

Barrick reduced its 2013 budgeted capital and costs by $1.5 billion during the second quarter and around $2 billion in the first half. The company also said it reduced 2013 capital guidance to between $4.5 billion and $5 billion from $5.7 billion to $6.3 billion previously. The company also cut its corporate office staff by 30% and made reductions at regional locations.

The company trimmed its quarterly dividend to 5 cents a share, down from the prior one of 20 cents.

Newmont Mining Corp.

Newmont (NYSE: NEM), the world’s second-largest gold producer, listed a net loss of $2 billion, or $4.06 a share, compared to net income of $279 million, or 56 cents, a year earlier.

The turnaround was largely the result of non-cash impairment charges of $1.8 billion, primarily due to the impact of lower gold and copper prices on long-term assets at its Boddington and Tanami mines in Australia, as well as stockpiles and ore on leach pads, the company said.

Revenues of $2 billion fell from $2.2 billion in the year-ago period.

Newmont said it is looking to reduce its corporate workforce by more than one-third, with similar efforts underway at regional offices. CEO Gary Goldberg said the company has already cut costs by $362 million for the year to date.

Newmont reported average realized gold and copper prices of $1,386 per ounce and $2.66 per pound, respectively, in the second quarter.

Costs applicable to sales were at $724 an ounce for gold and $2.53 per pound for copper, excluding stockpile write-downs. The comparable figure for all-in sustaining costs of gold was $1,136. For full-year 2013, Newmont forecast all-in sustaining costs, excluding stockpile writedowns, of $1,100 to $1,200 an ounce.

Newmont trimmed its quarterly dividend to 25 cents a share from 35 cents in the previous quarter.

Goldcorp Inc.

Goldcorp (TSX: G, NYSE: GG) reported a $1.93 billion loss for the second quarter, compared to net earnings of $268 million in the same period a year ago. The main culprit was a $1.96 billion charge mainly related to its Penasquito Mine in Mexico, reflecting its exploration potential.

Excluding the impairment and other items, adjusted net earnings were $117 million, or 14 cents a share. Revenues were $889 million, compared to $1.08 billion in the same period a year ago.

Goldcorp said its average realized gold price was $1,358 an ounce. Cash costs were $646 on a by-product basis and $713 on a co-product basis. The all-in sustaining cost was $1,279.

For the full year, Goldcorp reconfirmed its costs guidance. Goldcorp forecast total cash costs of between $1,000 and $1,100 per ounce on an all-in sustaining cost basis, $525 to $575 per ounce on a by-product basis and $700 to $750 per ounce on a co-product basis.

The company said it anticipates reducing 2013 capital spending by $200 million and has also targeted a 10% reduction in general administrative expenses.

Kinross Gold Corp.

Kinross (TSX: K, NYSE: KGC) reported lower adjusted earnings even though production rose from a year ago. Further, a massive impairment charge meant a large net loss.

The company reported a net loss of $2.482 billion, or $2.17 per share, compared with net earnings of $113.9 million, or 10 cents a share, in the year-ago period. This included an after-tax non-cash impairment charge of $2.289 billion, largely as a result of lower gold price assumptions. However, there also was a charge of $720 million tied to the previously announced decision to cease development of its Fruta del Norte project in Ecuador.

Excluding special items, the company posted adjusted net earnings of $119.5 million, or 10 cents a share.

Meanwhile, the company said it is suspending the semi-annual dividend that was to be paid in September in order to protect the balance sheet. The dividend paid in March was 8 cents a share. Kinross also announced $150 million in capital-spending cuts and said it would defer any decision on the Tasiast mill expansion in Africa until 2015. Exploration spending was cut by $30 million.

Revenue fell to $968 million from $1.006 billion a year ago. The company reported an average realized gold price of $1,394 an ounce. The production cost of sales was $737 and the all-in sustaining cost was $1,072.

For the full year, Kinross forecast production costs to be between $740 and $790, with the all-in cost between $1,100 and $1,200.

Agnico Eagle Mines Ltd.

Agnico Eagle (NYSE, TSX: AEM) reported a net loss of $24.4 million, or 14 cents a share, compared to net income of $43.3 million, or 25 cents, in the year-ago quarter. Excluding one-time items, the adjusted second-quarter net loss was $4.6 million, or 3 cents.

Revenues fell to $336.4 million from $459.6 million a year ago.

Like other companies, Agnico Eagle was hurt by the drop in metal prices. Further, the company’s output fell due to an extended maintenance shutdown at the Kittila mine in Finland, which only operated 14 days due to an issue with the autoclave, officials said. The maintenance was completed and production is now back to normal levels, the firm said.

Agnico Eagle announced plans to reduce capital and other costs by approximately $50 million for the remainder of 2013. Officials now project 2014 capital expenditures to be at least $200 million lower than their previous estimate of $600 million.

Excluding Kittila, the company listed total cash costs of $785 per ounce in the second quarter. For the full year, Agnico Eagle sees cash costs at $735 to $785. All-in sustaining costs are projected to be around $1,100 an ounce.

Yamana Gold Inc.

Yamana (NYSE: AUY, TSX: YRI), specifying no impairment charges as of June 30, reported a net loss of $7.9 million, or a penny per share. This compared to earnings of $42.9 million, or 6 cents, in the year-ago period. The company blamed the decline mainly on lower metals prices.

As was the case with a number of other producers, Yamana reported higher production yet lower revenues. Gold-equivalent output was 295,545 ounces, up 2% year-on-year. Revenue was $430.5 million, compared to $535.7 million a year ago.

Yamana listed an all-in sustaining co-product cash cost of $950 per gold-equivalent ounce. Average realized prices were $1,385 an ounce for gold, $22.55 an ounce for silver and $3.05 a pound for copper.

The company said it looks for expenses to decline in the third quarter due to cost-containment initiatives taken in the second quarter.

By Allen Sykora of Kitco News asykora@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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