Gold’s rally is adding pressure for the two to perform: the precious metal has hit repeated record highs already this year, on a steady march toward $3,000 an ounce, thanks to increased demand for the safe-haven asset.
“Gold is at $2,900 so the market is now saying ‘Show me the money’,” said Imaru Casanova, a portfolio manager at Van Eck Associates. “As the gold price makes fresh highs, the market will be focused on the companies’ ability to expand margins.”
Barrick, the world’s No. 2 producer, reports fourth-quarter results, which is expected to include its full-year production guidance. Agnico Eagle Mines Ltd., the third-largest miner, reports on Feb. 13, followed by top producer Newmont on Feb. 20.
Senior gold producers are already seeing a rebound in their stocks. A Bloomberg index of 10 senior gold miners has soared 31% this year — almost triple the gains seen from spot gold. That is helping the world’s largest producers catch up after last year’s 11% gain fell short of gold’s 27% rally.
Still, Barrick and Newmont continue lagging some of their smaller peers including Agnico Eagle, which routinely beat earnings expectations. The Toronto-based miner operates the bulk of its mines in Canada.
Weighing on Barrick’s stock is a dispute with the military rulers of Mali, where the company operates one of its largest mining complexes. Barrick suspended operations at Loulo-Gounkoto in January after the government started removing gold from the mine and blocking shipments out of the country. Barrick is also working through operational setbacks at key mines in Papua New Guinea and the Dominican Republic while dealing with persistently high input costs in the US, where it co-owns a giant complex in Nevada with Newmont.
Newmont is similarly looking to slash costs after third-quarter results revealed it was spending more at its operations in Australia, Canada, Peru and Papua New Guinea. Since then, the Denver-based company has looked to reduce overhead and shore up its balance sheet while wrapping up a series of asset sales that netted the producer $4.3 billion.
“Both companies have guided to a strong final quarter and will need to deliver on this,” Bloomberg Intelligence analyst Grant Sporre said. “Investors will be looking for a vastly improved operational performance from both Newmont and Barrick.”
The companies need to prove to investors that they can navigate operational challenges and rein in costs while taking advantage of rising gold prices.
“When gold’s going up, it usually means inflation is up too,” said Martin Pradier, an analyst at Veritas Investment Research Corp. “So the big question is: how well can these companies control their costs?”
(By Jacob Lorinc)
