Gold Shares at Inflection Point Says ABX
Barrick Gold Corp. (ABX) and Goldcorp Inc. (G), the world’s largest producers of the metal, are poised to outperform bullion after gold-mining companies fell to their cheapest in at least a decade, executives said.
Gold producers are heading for an “inflection point” triggering a rally, Barrick Chief Executive Officer Aaron Regent said in an interview. They have been punished as investors decided the shares should no longer trade as a proxy for physical gold, he said.
The growing popularity of gold-backed exchange traded funds, or ETFs, which include the $73.3 billion SPDR Gold Trust, probably have taken away some of the capital that previously was invested in companies such as Toronto-based Barrick, Regent said. Investors have shunned gold producers choosing instead to hold physical metal and ETFs after gold prices advanced in 11 successive years and touched a record in September.
The NYSE Arca Gold BUGS Index (HUI), which includes Barrick and 16 of its competitors, has advanced 53 percent in the past five years while spot gold traded in London has more than doubled. The index trades at about 17 times earnings, compared with an average of 65 over the past 10 years. The ratio fell to a decade low of 15 on Jan. 20.
“There will be a point where the multiples just converge with every other company,” Regent said Feb. 16 at Bloomberg News’s Toronto bureau. “Then you will start to see potentially increased leverage in the share price versus a gold price move.”
Holdings (.GLDTONS) of physical gold via ETFs have more than tripled in the last five years to 2,390 metric tons, an amount valued at about $137 billion, according to data compiled by Bloomberg. While such funds seek to track the price of gold, shareholders of gold producers may suffer the effects of mining accidents, cost overruns or asset writedowns.
Gold ETFs have “been a huge hoover of capital and competition for the gold companies,” Peter Miller, BMO Capital Markets’ head of equity capital markets in Canada, said in a Feb. 17 telephone interview. “It’s easy just to park yourself with an ETF versus taking on the capex creep and the operational risk of some of these development plays.”
Paulson & Co., the $23 billion hedge fund founded by John Paulson, said in its year-end letter that “investors remain puzzled” by gold stocks’ underperformance relative to gold. One likely explanation is concern that gold prices may decline, said Paulson, which is bullish on the metal…..
Yamana Beats Street
* Adj Q4 profit $0.25 v Street view $0.24
* Revenue rises 6 percent to $568.8 million
* Reserves up 11 pct to 18.6 mln gold equivalent ounces
* To spend $125 million on exploration in 2012
* CEO eyes more organic growth, not M and A
TORONTO, Feb 22 (Reuters) – Yamana Gold reported on Wednesday an 8 percent increase in fourth-quarter adjusted profit on higher precious metal prices and a boost in concentrate sales volume.
The Toronto-based gold miner also announced an 11 percent boost in its overall reserves and said it would increase its annual dividend by 10 percent to 22 cents.
On an adjusted basis, earnings for the quarter ended Dec. 31, rose to $184.2 million, or 25 cents a share from $170.98 million or 23 cents per share. That was slightly above analyst expectations of 24 cents a share on revenue of $601.5 million, according to Thomson Reuters I/B/E/S.
Revenue rose 6 percent to $568.8 million, as the average realized gold price climbed more than 21 percent to $1,670 per ounce and the silver price rose 11 percent to $31.29…
Pan American Silver Corp.’s (PAAS, PAA.T) swung to a fourth-quarter profit, helped by gains on derivatives and significantly higher metals prices.
Higher gold and silver prices have driven the Canadian mining company’s results in recent quarters, though its output has lagged due to production issues.
Pan American–which mines silver and, to a lesser extent, gold in Mexico, Peru, Bolivia and Argentina–predicted silver production this year will reach 21.5 million to 22.5 million ounces at a cash cost of $12.50 to $13.50 an ounce.
For the fourth quarter, the company posted a profit of $95.4 million, or 89 cents a share, compared with a year-earlier loss of $6.3 million, or 12 cents a share.
Stripping out items like derivative impacts, the company reported a per-share profit of 61 cents, easily topping the 51 cents expected by analysts polled by Thomson Reuters.
Revenue rose 8.5% to $212.4 million. Analysts were looking for $230 million in revenue.
Silver output decreased 6% to 5.3 million ounces during the fourth quarter, while gold production declined 10% to 17,239 ounces.
Shares closed Wednesday at $25.17 and were inactive premarket. The stock is up 15% over the past year through Wednesday’s close.