Strengths
- The best performing precious metal for the week was Lithium, flat on the week at 0.0%. Following the C$50 million of equity financing, K92 Mining has further strengthened its balance sheet in preparation for the Phase 3 expansion due to be fully underway within the next 12 months. Phase 3 will increase throughput to 1.2 million tons per year (currently expanding to 500,000 tons per year), enabling the company to take advantage of the growing, high-grade resource and increase production and cash flow per share.
- Yamana Gold recently reported its second quarter operating results. Second quarter production for 2022 came in at 261,000 ounces (up 7% versus consensus), at an estimated AISC of greater than $1,090 per ounce (up 1% versus consensus of $1,078 per ounce).
- Gold Fields announced that it intends to increase its dividend payout policy to 30%-45% of normalized earnings, from 25%-35% currently, upon the completion of the Yamana transaction. For 2023, the company intends to target its dividend at the high end of the range (i.e., 45%).
Weaknesses
- The worst performing precious metal for the week was palladium, down 15.2%. Exchange-traded funds (ETFs) cut 342,688 troy ounces of gold from their holdings in the last trading session, bringing this year's net purchases to 5.52 million ounces, according to data compiled by Bloomberg. This was the biggest one-day decrease since March 18, 2021, and the sixth straight day of declines (the longest losing streak since May 18). The sales were equivalent to $595.9 million at yesterday's spot price. Total gold held by ETFs rose 5.6% this year to 103.4 million ounces, the lowest level since March 11.
- New Gold reported a significant operating miss in the second quarter and announced material negative guidance revisions. The production challenges and revised guidance has been attributed to excessive rainfall at Rainy River, which has also necessitated a re-sequencing of the 2022 mine plan, along with early closure of the recovery level zone at New Afton.
- K92 Mining reported second quarter 2022 production results from its Kainantu Mine in Papua New Guinea of 26,100 ounces of gold. This is 20% below consensus due to a lower gold grade.
Opportunities
- Gold Fields’ management highlighted that the previously announced $40 million of annual pre-tax synergies is based on reducing corporate overhead as well as procurement savings. This does not include potential operational synergies which could “significantly” exceed $40 million per year, though they are not quantified at this stage.
- Royal Gold has entered into an agreement with Great Bear Royalties (GBR) to acquire GBR for cash of about C$199.5 million. GBR’s sole material asset is a 2% NSR royalty that covers the entire Great Bear Project in Canada operated by Kinross.
- Gatos Silver announced higher-than-expected grade and production, even accounting for shutdowns. While still too early to read into 2023 grade/production (or beyond), near-term execution and FCF generation buys management time to deliver a more comprehensive long-term plan.
Threats
- According to RBC, regarding cost guidance industry-wide, consensus would be to expect changes, but investor feedback pointed to a combination of the following: 1) a strong U.S. dollar that could boost the revenue lines as a partial positive offset, given all commodities are priced in the dollar while costs are paid in a mix of USD/local currencies, and 2) many gold companies often wait until the third quarter to change guidance in any case.
- Argonaut Gold made multiple announcements at the end of June highlighted by the reaffirmation of the previously released C$920 million estimated cost to completion ("EAC") for Magino. In addition, the company announced a new debt facility and equity funding package to finance the remainder of the build. Argonaut has made an application to the TSX for a "financial hardship" exemption for shareholder approval of the equity financing and expects that the TSX will commence a standard de-listing review because of the application.
- Triple Flag Precious Metals’ second quarter production of 19,500 ounces was 9% below RBC’s estimate. The company noted that production was partially impacted by deliveries that were dispatched but not yet included in sales. Annual guidance has been revised down 3% to 88-92,000 ounces, from 90-95,000 ounces, and is in line with RBC’s estimate of 90,000 ounces.
