Gold-Mining Stocks Hold Up; Base-Metals Producers Outperform

(Kitco News) - Gold-mining stocks on balance had a good first four days of the week, with most higher even though gold gave up a portion of its recent sharp run-up.

Shares of companies mainly in the base-metals business did even better as copper traded higher, and major producers either reported a profitable fourth quarter or measures to cut debt.

As of Thursday’s close, Comex April gold futures were at $1,226.30, a decline of $13.10, or 1.1%, during the first four days of the week. However, that pullback came from lofty levels, as gold fetched its highest price in a year last week. Comex March silver was down 35.8 cents, or 2.3%, over the first four days of this week to $15.432.

During that same time span, the NYSE Arca Gold Bugs index (HUI) eased 2.1508 points, or 1.3%, to 161.4328. The Market Vectors Gold Miners exchange-traded fund (GDX), which consists of stocks of gold-mining companies, inched up 6 cents, or 0.3%, to $18.90 per share.

Excluding penny stocks, the biggest gainers for the week in the metals space were First Quantum Minerals Ltd. and Freeport McMoRan Inc. This comes as Comex March copper ticked up 4.45 cents from the close last Friday through Thursday, a gain of 2.2%, to $2.0735 per pound.

First Quantum (TSX: FM) surged $1.07, or 33%. The diversified mining company – which is heavily focused on base metals but also produces some gold -- issued its fourth-quarter results Thursday, showing it remained profitable, as well as 2016 guidance the day before.

As shares were rising mid-week, Citi Research attributed the strong price reaction in part to the company’s ability to continue generating cash at current spot prices. “With the balance sheet dominating the equity story, this is understandable,” Citi said.

Still, Citi and other analysts also expressed some concerns, with BMO Capital Markets characterizing the earnings release as “mixed, net negative.” The company announced higher comparative earnings for the fourth quarter than a year ago. BMO said the bottom line beat expectations but added that this appeared to be “a function of the timing of tax recovery and impairment-related adjustments,” as well as suggesting the company was not specific on how it would undertake debt-management initiatives.

Freeport McMoRan (NYSE: FCX) climbed $1.62, or 29%. At the start of the week, Freeport announced yet another step in its efforts to cut debt – selling a 13% stake of its Morenci mine in Arizona to Sumitomo Metal Mining for $1 billion.

Imperial Metals Corp. (TSX: III), which produces both base and precious metals, bounced back from weakness earlier this month. Shares climbed 92 cents, or 22%.

Endeavour Mining Corp.(TSX: EDV) was among the top-performing gold-mining shares, gaining $1.79, or  17%. Its stock has been rising steadily since mid-January. The company announced last month that 2015 gold production of 517,948 ounces exceeded guidance, then upped its forecast for this year to between 575,000 and 600,000 ounces with all-in sustaining costs projected to fall to between $875 and $925.

Coeur Mining (NYSE: CDE) rose 42 cents, or 13%.

Meanwhile, the world’s largest gold-mining company, Barrick Gold Corp. (NYSE: ABX), which was already on a tear higher this year, gained another 38 cents, or 3%, during the week of its earnings report. The company’s adjusted fourth-quarter profit of 8 cents per share topped consensus expectations. Barrick also said it aims to cut its debt by another $2 billion this year after chopping it by $3.1 billion in 2015.

“Barrick has sharpened its strategy to focus generating/growing free cash flow in any gold price environment while maintaining a sustainable portfolio capable of generating a 10-15% return on invested capital through metal price cycles,” said CIB World Markets, adding that the renewed focus on free cash flow and transparent capital allocation should be “well received” by the market.

“ABX's production outlook for the next several years is mostly in line while costs are declining at a faster-than-expected pace,” Citi analysts said. “We remain positive on ABX because of its low-cost position among the senior gold producers we cover and expected free-cash-flow generation.”

No. 2 producer Newmont Mining Corp. (NYSE: NEM) didn’t fare quite as well in the week of its earnings report, shedding 71 cents, or 3%, even though it also got some favorable analyst comments, with Citi and Credit Suisse upping their target prices. The company’s earnings per share missed expectations, but BMO suggested this was largely due to higher taxes partially offset by higher revenues and other items.

“Positively, NEM reported production and AISC (all-in sustaining costs) within its full-year guidance, and the company’s key growth projects appear to be tracking on schedule and on -- or below -- budget,” BMO said, describing the impact of Newmont’s results as “mixed.”

Pan American Silver Corp. (NASDAQ: PAAS) added 69 cents, or 8%. Pan American reported record gold and silver production in 2015, although the company had a net loss for the fourth quarter and full year largely due to impairment charges.

South African gold companies – which have outperformed other mining shares in recent months as their earnings benefited from a weaker rand – comprised the majority of the decliners this week. Losses were led by Gold Fields Ltd., which fell 19%. The company said 2016 production is expected to decline. Further, the guidance included a 30% increase in output from South Deep, which is more than two years behind schedule, according to news repots. Gold Fields’ shares fell as much as 24% at one point Thursday in trading in Johannesburg.

Courtesy: Kitco News