Home » gold » A Tale of Two Gold Miners

A Tale of Two Gold Miners

by John Rubino on May 1, 2012 · 11 comments

Gold has doubled since 2008, so you’d expect the gold mines that were green-lighted based on those old numbers to be generating massive cash flow by now. Some are. But some aren’t, and the difference, as with so much of life, is execution.

Canadian miner Agnico-Eagle, for instance, had a tough 2011, with a mine-related problem raising costs, cutting production, and knocking its stock down by half. But its other properties are picking up the slack, so this year it gets to sell rising production into a reasonably strong market with fewer extraneous costs. The result:

Agnico-Eagle Begins 2012 With A Strong First-Quarter
(Kitco News) – After going through an awful year in 2011 that saw Agnico-Eagle Mines Ltd. (NYSE:AEM)(TSX:AEM) shut down a major mine, lower gold grades and expensive write-downs, the company has kicked off 2012 with strong operating and financial results.

“We had a difficult year last year with some operating challenges,” said Sean Boyd, president and chief executive officer of Agnico-Eagle. “We’ve worked hard over the last several months on optimizing our operations as we move forward.”

Agnico-Eagle produced 254,955 payable gold ounces in the first quarter compared to 252,362 payable gold ounces produced during the same time last year. Two of the company’s mines achieved record gold production in the quarter.

“A lot of these new mines are at the point where they are more mature and we can see that reflected in the results in the first quarter,” said Boyd. “So we were extremely pleased that we had contribution from all of our mines.”

Financial results were equally strong in the first quarter, with Agnico-Eagle posting a quarterly net income of $78.5 million, or 46 cents per share. The company had a net income of $45.3 million, or 27 cents per share, during the same period last year.

Enduring a harder 2012 is Goldcorp, another big Canadian miner that had its operating problem this year rather than last:

Goldcorp profit hurt by Ontario mine setback
TORONTO, April 25 (Reuters) – Canadian miner Goldcorp Inc reported a slim increase in its operating profit on Wednesday, as its most prolific mine was hit by operational problems that reduced output and offset most of the gains from a surge in bullion prices.

Vancouver-based Goldcorp said adverse ground conditions at the Red Lake mine in northern Ontario delayed the development of certain areas in the mine’s high-grade zone. That, together with lower grades in certain other areas of the mine, led to a slow start to 2012.

The issues led to an 18 percent drop in Goldcorp’s quarterly gold output and threw the miner’s full-year production forecast into question. Its shares were down more than 3.7 percent in after-hours trading on Wednesday.

“We were clearly a bit disappointed with the production performance, I feel like we left an opportunity on the table,” said Chief Executive Chuck Jeannes. “Overall I was happy that we saw increased earnings, increased revenues and increased cash flows quarter-on-quarter, but it could have been better.”

Jeannes said output has begun to pick-up at Red Lake, but the company is now conducting a review to see whether it can make up the first-quarter shortfall over the rest of the year.

“We can certainly work around the issues. We don’t have a concern about the long term future of Red Lake, but whether we can make up those ounces this year will be determined.”

Canada’s No. 2 gold miner said that for now it is sticking by its 2012 gold production forecast of 2.6 million ounces at total cash costs of $250 to $275 per ounce of gold on a by-product basis.

The lesson? For big, diversified miners, operating problems are seldom permanent or decisive. Mines have their ups and downs, and technical snags usually get fixed, after which production, costs and cash flow return to plan. And even when they don’t, one mine’s shortfall is frequently offset by pleasant surprises at other mines. That’s the attraction of the majors versus the juniors: If a junior has just one or two properties and one of them fails, it’s an existential threat. If one of Goldcorp’s mines underperforms, it’s one bad quarter (defined as only a slight increase in operating profit) followed by a return to normalcy.

This is not to say that majors will outperform the best juniors — they probably won’t — but it is a lesson in how to play diversified miners: If you’re confident that gold will rise from here, operating problems that crush the share price of an Agnico-Eagle or Goldcorp represent a buying opportunity. The worst case for a company like this is that it can’t fix its problems in the near term and becomes a buy-out candidate, probably for a premium over its post-bad-quarter price.

  • http://NextUpPortugal Jerome Eisen

    I hope your right John i am hanging in there with mine as long as i can,i had one Northgate be bought out by AuRico and it’s doing better.

  • bob D

    you are on point, but might take another look as to where spot will go,
    then use that guess to propell your buys from stock to physical

    as you know, china india et al are dumping their fiat, for today, but
    they are not selling they are dumping fiat which they see long term
    as worthless, thus they can increase inventory of gold via buying with
    worthless fiat…. hare to beat china at its own game

    thanks for copy of yours on a timely basis, i read yours today
    and is helpful to pivot on, since helpful to me i offer the above
    as payback hope it helps you

  • bob D

    your top line, today’s paper, is “Inflation Is Coming The World’s
    Financial System Is Crumbling. Here’s …………………..”
    i hope you know better, i.e. we are already in a run away freefall hyperinflation thanks to obama,

    the eurounion is bankrupt without hope of recovery and
    thus now talk of euroLand which will be devised by the same dummies thus
    fail at the onset,

    us$ is in worse than euro bankruptcy, obama’s intent is
    to destroy usa and all the west nations and he has succeeded in putting
    them on a free fall course into oblivion…………….

    at the same time,
    china is touting their yuan as the new world currency and are succeeding
    in bringing more nations into using their world yuan which means
    china (PRC is china’s strong arm military to kick butts, and PRC is in
    charge of China all the time) will be world boss

    the new to start this year, as boss of china, Xi jinpeng/PRC but PRC
    will have to join with Russia/USSR/Putin – so buy hard gold or hard inventory
    and hide it dont leave in commercial office nor banks, for when push comes
    to shove which is soon to come, and all custodians will hide the loot….

  • Sue

    Buy silver, not gold. Gold will be confiscated. I do blame Obama, but Bush is equally to blame. The real point is that whoever signs up for President is already sold out. Not Ron Paul, but then he won’t get the nomination. If he does, well. JFK all over again.

    • Jim Dandy


      If you think gold will get confiscated again at some point, then miners are the place to be, and should even out-perform silver. Just take a peek at how they did from 1932-1935, up 400%!

  • W G Thompson

    I agree re. silver vs. gold, for the
    simple reason that any US silver coins
    are still valid currency, and valid in
    local commerce, which may be the only
    kind of commerce we are left with. The
    drawback is, of course, one’s access to storage/security. Anyone going for Au
    had better store it in Schweitz, at the
    Zurich airport. Nothing arranged here
    is Executive-Order-proof. WGT

  • http://www.wealthbuildingtoday.info wealth builders

    The gold Juniors look like they broke out today. They seem unbelievably cheap to me. I can’t imagine much more downside, I’ll take that risk. And the big miners are now paying better and better dividends.

  • Pingback: Wednesday Morning Links | Iacono Research()

  • Jason Emery

    Gold stocks have underperformed gold bullion for many years, and will continue to do so, I believe. The gold price is being manipulated so as to slow its advance higher. This means that the gold price doesn’t fully reflect the massive level of hyperinflation right in front of our eyes every time we go to the store.

    Therefore, for gold miners, their costs are going up faster than their revenue. Agnico Eagle, for example, is trading at $39/share. When gold was at $1000/oz it traded at $80/share. It has been a horrible investment for years.

    Gold corp isn’t much better. At $38/share, it is trading at the same price as when gold was at $1000/oz (now $1600/oz).

    How anybody could tout gold stocks is absolutely shameful, unless you have some insider information that gold is going to start going up faster than the cost to mine it, which seems unlikely.

  • http://independentstockanalysis.com/ JJ Butler

    Angnico looks to be on the mend. There is never one cockroach, so Goldcorp may have more shoes to drop. Anyone have any thoughts is Kinross (kgc) hit their nadir yesterday?

  • Brian Young

    Indeed it was a great lesson for many. It can happen in gold mining that what is expected from a mine, you did not get the quantity of Gold from their. Gold mining is very risky and profitable too. You should use some tricks to get rid of greater loss.

    -Brian @ how to sell gold jewelry blog.

[Most Recent Quotes from www.kitco.com] [Most Recent USD from www.kitco.com] [Most Recent Quotes from www.kitco.com]