The miners are hanging in there so far, but here’s what to look for

The mining sector earnings reports hit full stride this week, and we already have some earnings hitting the tape.

Barrick Gold beat earnings expectations when they reported 2nd Quarter 2017 earnings last week. Some highlights from their report:

  • Barrick reported second quarter net earnings attributable to equity holders (“net earnings”) of $1.084 billion ($0.93 per share), and adjusted net earnings(1) of $261 million ($0.22 per share).
  • The Company reported second quarter revenues of $2.160 billion, net cash provided by operating activities (“operating cash flow”) of $448 million, and free cash flow(2) of $43 million.
  • Gold production in the second quarter was 1.432 million ounces, at a cost of sales applicable to gold(3) of $726 per ounce, and all-in sustaining costs(4) of $710 per ounce.
  • Total debt was reduced by $309 million in the second quarter.
  • We continue to expect full-year gold production of 5.3-5.6 million ounces, at a cost of sales(3) of $780-$820 per ounce, and all-in sustaining costs(4) of $720-$770 per ounce.
  • Normal leaching operations, including the addition of cyanide, have resumed at the Veladero mine in Argentina, following the anticipated ramp up and testing of upgraded leach pad systems.
  • We completed the formation of our strategic partnership with Shandong Gold, a landmark agreement with the potential to create fundamental long-term value for our respective owners, as well as our community and government partners in Argentina.
  • Barrick will begin discussions with the Government of Tanzania next week concerning the concentrate export ban and other issues impacting Acacia Mining plc’s operations in the country

As shown in the Barrick Earnings Report, the miners have been working to lower their all-in sustaining costs, even in the face of oil prices that are higher than they were last year. It appears the miners are also looking to lower their debt burdens as the next gold bull market run gets off to is slow but sure start.

The HUI has been performing nicely over the last week, as shown in the chart below:

Beginning on 8/3, several of the junior miners release their earnings reports, including First Majestic, Hecla Mining, and Endeavour Silver. The following week, we will see how earnings are reported for companies such as Pan American Silver, Tahoe Resources and Silver Standard Resources.

Last week and continuing through this week have seen nice moves in both gold and silver, and both metals are above their 50-day moving averages.

Continued dollar weakness, rising oil prices, and now the lean-and-mean miners who have adapted and survived the heavy-handedness of downward price manipulation could be about to signal solid earnings that confirm the new bull market so many are reluctant to accept.

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  1. Looking for the seniors to start doing bolt-on acquisitions once their paper strengthens some more.   There are a lot of small/mid size producers out there that would be accretive to acquire.  Many with strong balance sheets, decent mine life, robust cash flows, competitive AISC, and yet trading at low multiples.   Only a matter of time before they become targets.   In the last few years the seniors mostly had defaulted to their tried and true (and cost effective) methods of brownfield exploration and looking at near mine material.   Truly, they did go crazy in the last few years of the last cycle, with wild binging sprees.  Overpaying for marginal assets.   Overpaying for almost everything, good or bad really.   But that isn’t the situation the mining space is in right now.    It’s not as good as 2015 for buyers, but not too shabby.  I’m looking at high quality assets now, in the exploration and development stage trading at a minuscule fraction of what the market paid 5 or 10 years ago.    The seniors are not replacing reserves as a group, and they cannot grow organically.   The best they can hope for is to extend the lives and control the costs of their current mines.    Acquire they will, and acquire they must.   The only major I see in good shape with a growth profile is Goldcorp with their 20/20/20 plan.  20% increase in reserves, 20% reduction in costs, and 20% increase in production.   And Agnico has always been well run, but seems too rich to be a buy.   ABX and NEM and all the others are gonna go up when gold does, but I’m more excited about the tiny $200M company with a ton of cash, no debt, and going to be producing 100-150,000 ozs gold at low cost for a long long time.   I’m more excited by the Quebec explorer delineating a multimillion oz high grade deposit that will be a great mine trading for peanuts.  I’m more excited about the royalty and streaming companies doing great deals.  I’m more excited about silver companies that will see their earnings double from silver going up just a few dollars from here.   Seniors, I only want to hold them if I get their shares in a buyout, and maybe hold them for the income.  The miners will become good dividend payers again with time.  There is almost no interest or enthusiasm in the PM equity space and that’s a good sign.  Even the militant gold bugs think that gold will only get to $1400-1500 in year or two, and eventually $5000 in 10 or 20 years..   I got news for ya folks, gold could add $200 in 2 months, at any time.   But not likely to go down $200 from here and retest the 2015 lows.   Hell gold was $1000 a decade ago. There’s too much money out there, and too many people that want to buy gold at a lower price.   Billions of people.   Eventually, everyone with any decent amount of money will want to own SOME gold/silver.   Not just Indians buying wedding jewelry and industrious Chinese hoarders.

  2. Now for months those who promote metals have all been claiming that at prices of around $1200 for gold and silver under $16 that miners cannot make a profit as the cost to mine is close to costs. Of course I kept commenting it is all bullshit as gold mining cost are from around $700 to a little above $900 depending on the mine and silver was anywhere from around $2 to a little above $7 depending of course if the mine is looking for more valuable base metals and silver is a byproduct and the higher cost reflects pure silver miners who are far and in between. Well just look at Barricks bottom line and the overall cost to mine gold at $726. The gold promoters have been totally discredited and they promote total bullshit! They are making $524 an oz as their statements show. Kieth Nuemeyer at First Majestic that his over cost for silver is between $13 and $15 and if this is the case it is time to get ride of their stock.

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