The report card for the country’s three major ASX-listed gold miners – Newcrest, Northern Star and Evolution Mining – for the six months to December should show comments like – “can do better’, ‘weak,’ ‘pass mark at best’.
For all the talk of a solid gold market – not as upbeat as 2020 when it hit an all-time peak above $US2,000 an ounce in August of that year – gold has meandered for the past year in a fairly tight trading range of around $US100 to $US150 an ounce.
But since Russia started its antics near Ukraine, gold has woken up and Thursday topped $US1,900 an ounce for the first time in a year.
The latest results confirm all three miners have a lot more repair work to do operationally here in Australia and in their offshore operations (mostly Canada or PNG)
But from Canada a very solid result for a global major – Barrick, Number 2 around the world in gold after Newmont (which reports next week) – higher earnings, a higher dividend (and a significant change in dividend policy) and a hint of a return to the Pacific (ie Australia?).
The sort of result the Australian trio can only aspire to at the moment.
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Despite a 46% slide in first half earnings and a halving in interim dividend, Newcrest (ASX: NCM), the nation’s largest gold miner, remains confident it can get its ducks in a row and stage a second half comeback.
The 46% drop in its first-half profit and halved interim dividend could be hard to overcome by June 30, even if global gold prices have firmed strongly over the $US1,800 mark (and over $US1,900 an ounce on Thursday) thanks to the antics of Russian president Vlad Putin and his military forces on the borders of Ukraine.
Newcrest blamed the weak first quarter result on upgrade works at giant gold/copper Cadia mine in central western NSW and another bout of weak production declining grades from its Lihir mine in Papua New Guinea.
Newcrest also blamed higher labour and transport (energy) costs, an unfavourable impact from the strengthening Australian dollar against the US dollar, and a lower gold price for the weak result
But the halving of the dividend to 7.5 US cents a share from 15 cents (because of the more conservative payout policy) is a sign the board might be having an each-way bet. Confident, but…?
Newcrest on Thursday said it had made a net profit of $US298 million for the six to December 31, down more than 46% from the $US553 million earned in the final half of 2020.
In recent years it invested in Ecuador-focused gold and copper explorer SolGold (as has BHP), acquiring finance facilities with Lundin Gold’s Fruta del Norte mine, bought a majority stake in Canadian gold mine Red Chris and listing on the Toronto stock exchange.
It is now in the process of settling a $3.7 billion deal to acquire Toronto-listed Pretium Resources and its rich Brucejack mine.
Newcrest’s gold old production was down 20% in the half from the same period of 2020, copper production was down 27%, the all-in sustaining cost of $US1,194 an ounce was up 23% and the company’s all-in sustaining cost margin of $US502 an ounce was down 40% (That’s effectively its gross profit margin on gold)
Underlying profit was lower due to the planned upgrade of the Cadia SAG (grinding) mill motor, which was completed in November. Production was also lower at Lihir due to an expected fall in the grade of the ore.
Cadia has been cleared to boost production over the next couple of years which should see more gold and copper produced.
The results reflected falling gold and copper sales due to less production at the mine, the company said. This wasn’t helped by a lower realised gold price, higher freight costs, and a stronger Australian dollar against the US dollar impacting operating costs.
Supply issues and rising demand also put pressure on the operating costs and one off Covid related costs – especially at Lihir ($US27 million alone).
On a positive note, a higher realised copper price and lower income tax expense partially offset these concerns. Operating costs were lower due to lower sale volumes, a decreasing gold price, and other volume-linked costs.
And a nice positive saw Newcrest report a 10% rise in gold ore reserves to 54 million ounces.
Newcrest said it is on track to deliver its June 30 production guidance on the back of it completing major maintenance in September and the Cadia SAG mill motor upgrade.
The company says it expects performance at the Lihir mine will improve in the second half of the financial year due to mining more higher-grade ore.
Its all-in sustaining cost guidance also remains unchanged. However, the costs of managing Covid and its variants are expected to be around $US50-$US60 million, up from the $US35-$US45 million estimated at the start of the financial year. This is due to government restrictions on travel, staff absences, logistic challenges, and isolation.
Commenting on the outlook Newcrest CEO, Sandeep Biswas added: “Following a solid start to the financial year, Newcrest is well placed to deliver a strong second half, to continue to pursue profitable growth.”
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The country’s second largest gold producer, Northern Star Resources (ASX: NST) saw its net profit after tax (NPAT) climb in the December half year while revenue rose a solid 63% as the benefits of the merger with Saracen Minerals started flowing.
Northern Star said total revenue rose to $1.807 billion in its first full reporting period since merger with Saracen from $A1.11 billion a year earlier.
The company said net profit was up 43% to $261 million.
Underlying net profit of $108 million was a “substantial miss” against market expectations of $196 million, according to Citi analysts while underlying earnings before interest, taxes, depreciation and amortisation of $699 million was also short of market hopes.
Despite the big rise in revenue and profits, Northern Star played it conservative so far as the interim dividend is concerned and lifted it half a cent to 10 cents a share in the latest period – but that was on a capita base expanded by the Saracen purchase.
The company said the improvement its revenue was due to an increase in gold sold as well as the early benefits of the Saracen buy.
The Saracen merger was completed in February 2021 meaning Northern Star enjoyed a full six months of sales and earnings from the Thunderbox and Carosue Dam mines in Western Australia (previously owned by Saracen), while the extra 50% of Kalgoorlie Consolidated Gold Mines (KCGM), was included in latest result.
The inclusion of Saracen plus higher energy and other costs saw a 103% jump in Northern Star’s in cost of sales.
“Generally, the increase arose from a combination of increased activity with the inclusion of the merger assets in the current half (107% increase period on period), higher average cash costs per ounce, and the increase in depreciation and amortisation unit costs (increase of $291/sold oz),” Northern Star said in the half-year report.
Northern Star also booked a pre-tax gain of $242 million from the sale of its Kundana assets in WA to Evolution Mining, which was completed in August 2021.
Northern Star said its “total assets broadly remained consistent compared to 30 June 2021”.
“This is despite a lower cash and cash equivalents balance due to the net repayment of $361 million of corporate bank debt,” the company continued.
“The acquisition of Newmont’s power business was also completed in the period for total purchase consideration of $US95 million ($130 million) and the group made a $C154 million ($170 million) investment in a convertible debenture with Osisko Mining Inc.”
Northern Star sold 779,000 ounces of gold in the December half and maintained full-year production guidance at 1.55-1.65 million ounces. Northern Star said major growth projects at its Kalgoorlie and Yandal operations were progressing in line with its ambition of being a 2 million ounce-a-year producer by 2026 (which is roughly where Newcrest is at the moment).
CEO Stuart Tonkin said in the release the miner would reveal next month whether it would take up its right to acquire up to a 50% interest in the Windfall gold project in Quebec, Canada, owned by Toronto-listed Osisko Mining.
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Not such a solid set of figures from Evolution Mining (ASX: EVN), as its December half year report confirmed the negative impact on revenue and earnings from a reduction in gold volumes and a lower recognised price
That saw the company slash interim dividend by more than 50% to 3 cents a share from 7 cents.
Revenue was down 9% to $898.6 million; statutory net profit after tax was down 60.3% to $90.8 million, underlying net profit after tax was down a bigger 57% to $100.1 million and earnings before interest, tax depreciation and amortisation slid 23.6% to $393.3 million.
Total gold production of 318,766 ounces at an all-in sustaining cost of $A1,381 per ounce
According to the release, the company’s revenue fell short of the previous half (when it must be said world gold prices peaked at an all-time high of $US2,087 an ounce in August 2020 and the Aussie dollar was lower) due to lower gold volumes from Mt Rawdon (Australia) and Red Lake (Canada) mines.
On top of this, Evolution saw a 4% lower gold price at $A2,371 an ounce.
Another disappointment was the sluggish performance of the Kundana mine acquisition from Northern Star.
Evolution said it processed its first higher grade ore from Kundana in late August and the company is now looking to reduce duplicate activities and recognise some synergies (Ie, cost savings).
Evolution will be looking for a bigger contribution from its ownership of the Ernest Henry mine in northwestern Queensland that was purchased for $1 billion last November. Evolution is due to make the remaining $200 million on January 6, 2023.
At December 31, Evolution Mining reported a 12% rise in mineral resources to be around 29.6 million ounces.
Evolution’s executive chair Jake Klein said in the results statement that the half-year to 31 December 2021 “has been transformational.”
“The portfolio has benefitted from key acquisitions and a significant investment in growth projects at our cornerstone assets, which is supported by a high-quality Mineral Resource and Ore Reserve base, and our business is well-positioned to deliver a very strong second half.
“Full ownership of Ernest Henry will deliver a material increase in cash flow and financial performance and was considered when declaring the interim dividend.
“Evolution’s history of dividend payments with almost A$1 billion paid since 2013 demonstrates our commitment to maximising shareholder returns,” Mr Klein said.
In terms of guidance, Evolution Mining expects to produce 670,000 to 725,000 ounces of gold in the year to June 2022. This he forecast will be done with an AISC between $1,135 to $1,195 an ounce.
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It was a very different story for the world’s second biggest gold miner, Barrick, where shareholders did very well in the company’s 4th quarter results release.
Barrick announced it will run a $US1 billion share buyback after lifting quarterly dividend by 11% to 10 US cents a share.
The company also revealed a change to its dividend policy which will link the size of the payout to the company’s liquidity.
Under the Company’s new dividend policy, Barrick said a base dividend will in future be coupled to a performance dividend linked to the net cash on the balance sheet.
At December 31, 2021, Barrick had $US5.280 billion in cash and equivalents, up slightly from $US5.188 billion a year earlier.
After debt of $US5.150 billion at December, 31, 2022, net cash was $US130 million, up from $US33 million a year earlier.
Calling it a performance dividend policy, Barrick said it will enhance the return to shareholders when the Company’s liquidity is strong.
Barrick said its fourth-quarter results beat market forecasts thanks to strong production at its Nevada mines and a tax bill that was smaller than expected.
Barrick said net earnings for the quarter more than doubled from the previous quarter to $US726 million from $US685 million a year ago (when prices were higher).
Barrick said average gold prices for the quarter fell to $US1,793 an ounce from $US1,871 an ounce a year earlier, while production for the three months to December fell marginally to 1.203 million ounces from 1.206 million ounces.
For 2021 as a whole, Barrick saw a 6.8% slide in gold output to 4.437 million ounces from 4.76 million ounces in 2020.
Copper production was also lower in 2021 at 415 million pounds compared to 457 million pounds in 2020 but a 48% jump in the average copper price didn’t hurt and helped give the result for the quarter and the year a big boost.
Barrick’s costs climbed during 2021 (along with the rest of the mining sector).
All-in sustaining costs (AISC) – a measure of total cost of mining – at Barrick’s copper mines jumped by 17.5% to $US2.62 a pound in 2021 from $US2.23 a pound in 2020. Costs at Barrick’s gold operations rose by 6.1% to $US1,026 an ounce from $US967 an ounce in 2020.
Barrick said it sees all-in sustaining costs to climb again to between $US1,040 and $US1,120 an ounce of gold in 2022, with cash costs between $US730 and $US790 per ounce.
That’s implies an inflation rate of 4.8% at least which is higher than previous forecasts which were around 3.5%.
CEO Mark Bristow said that he thinks the impact of inflation can be offset by efficiencies.
“The gold industry is facing inflation, but that’s good for gold. It is what it is, we have to manage it,” he told Reuters adding there were “opportunities to mitigate the price increases”.
Mr Bristow said energy was the biggest driver of cost increases, and Barrick’s solar power facilities at mines in Nevada and Mali would help reduce its power costs.
Announcing the share buyback, he said the share price did not reflect the value of the company’s assets.
Barrick shares surged in 2020 when gold prices spiked in response to the global pandemic, but the stock has performed less well since, falling 15.6% in 2021.
Asked if Barrick planned to buy back the full $US1 billion amount, Bristow said it would depend on the market.
Newmont announced a buyback of the same amount a year ago and is due to release its 4th quarter report next week.
Interestingly, Barrick also announced that it would return to the Asia Pacific region, saying it had set up a specialist Asia-Pacific team to identify and evaluate opportunities in that region.
That’s an intriguing announcement as without saying so, is an admission that it pulled the wrong rein when it sold its 50% share in Kalgoorlie’s Super Pit (as did then partner, Newmont). Northern Star now controls the entire open cut mine.
In contrast, Newmont has maintained its involvement in Australia through its mine in the Tanami desert which is being expanded and the Boddington mine near Perth.
