Investors are bracing for a weak first quarter from Canada’s biggest gold companies with lower production and higher costs expected amid a marginally higher commodity price.
Barrick Gold Corp., the world’s biggest gold producer, reports Monday after the close, with Goldcorp Inc. and Agnico Eagle Mines Ltd. to follow later in the week.
“We expect rising labour costs combined with higher energy and consumable costs to put upward pressure on both operating costs and all in sustaining costs (AISC) at maturing mines,” wrote Stephen Walker, head of global mining research with RBC Dominion Securities Inc. in a note previewing earnings season at the senior gold producers.
Barrick has already signalled that costs during its first quarter will be the highest of the year, owing to lower grades at its Nevada operations and maintenance expenses at its Pueblo Viejo mine in the Dominican Republic, which it co-owns alongside Goldcorp. Investors will be looking for any progress Barrick has made to end a nasty tax spat between the Tanzanian government and its subsidiary Acacia Mining PLC.
London-based Acacia, which accounts for about 5 per cent of Barrick’s gold production, has been under a gold concentrate export ban in the East Africa country for more than a year. Tanzania has accused Acacia of drastically underpaying its taxes. Barrick, which is negotiating on Acacia’s behalf, had previously said it is expecting to announce an agreement to end the fracas by the middle of this year.
Like Barrick, Agnico Eagle’s gold production is expected to fall this year, owing in part to lower grades. In the first quarter specifically, RBC’s Mr. Walker is expecting a “slight negative impact” from the long and cold winter on Agnico’s Canadian operations. Investors will also be watching for any updates the company may have on its Amaruq and Meliadine gold projects in Nunavut, which are expected to go into production in 2019.
Goldcorp investors may get a resource and reserve update on the company’s Coffee gold development project in the Yukon, when it reports financial results. Coffee is a cornerstone of the company’s plans to increase its production over the next few years. Also of interest will be the expected release of a pre-feasibility study on its NuevaUnion project in Chile. Goldcorp co-owns the project, which it says is one of the largest copper-gold-molybdenum projects in Latin America, alongside Teck Resources Ltd., Canada’s biggest base-metals company.
Investors in Kinross will watch for any new details on expansion plans for its Tasiast gold mine in Mauritania. Shares in the Toronto-based miner got hit hard recently after the United States imposed sanctions on a number of Russian oligarchs. Russian mines accounted for around 20 per cent of its gold production last year. Kinross said the geopolitical event had no impact on its operations.
Investors will also look to copper producer First Quantum Minerals Ltd. for an update on its dispute with the Zambian Revenue authority (ZRA). In March, in an event reminiscent of Barrick’s travails in Tanzania, the ZRA slapped the copper producer with a US$7.9-billion tax bill, claiming the miner had underpaid certain import duties over a period of five years.
Meantime, Lundin Mining Corp. is expected to report a decline in year-over year copper production in its first quarter. Late last year, a rockslide caused significant damage to a pit wall at its flagship Candelaria mine in Chile, forcing the company to pare back its 2018 production forecast. Investors will look for an update on remediation work at Candelaria, which is the miner’s biggest asset, accounting for about half of its revenue.
Gold and copper producers are getting little, if any, headwinds from commodity prices in 2018. While the price of gold has advanced by about 3 per cent this year, copper has fallen by the same amount.
Editor’s note: Tanzania has accused Acacia Mining of underpaying its taxes, not Zambia, as was incorrectly reported in a story in ROB on Monday.
Niall McGee