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KGC is featured at the bottom of the article as a "new titan."
In a world enamored of fame and fortune, the stars among the miners of golden fortunes attract paparazzi-like attention with every earnings release.
Barrick Gold (NYSE: ABX) and Newmont Mining (NYSE:NEM) are the darlings of gold's red carpet. Although Barrick Gold's net earnings fell 28% and Newmont's take slid 48% over the prior-year period, there were moments of brilliance.
The world's largest producer, Barrick Gold, hogged the spotlight with 1.76 million ounces of production at a lean cost of $404 per ounce after by-product credits. Impressively, those costs would have come in $45 lower if oil and currency hedges had followed the script. And the company's copper production transformed an average spot price of $1.56 into a realized price of $2.93 through the fickle magic of hedges.
Barrick Gold says these costs indicate a "lower production and higher cost quarter," adding that we can expect production and costs to improve as the year rolls on, which supports guidance calling for 7.2 million to 7.6 million ounces of gold at costs of $360 to $380 per ounce for 2009. Since I consider another monster move from gold inevitable as the global financial crisis continues to weigh on a structurally impaired U.S. dollar, these forecasts translate into continuing operating margins that should delight investors.
In addition to the Hemlo mine acquired at fire-sale prices from debt-laden Teck Cominco(NYSE: TCK), Barrick Gold is focused on the new Buzwagi mine in Tanzania. The first gold pour is expected soon, and Barrick Gold is looking for 200,000 ounces from the project in 2009.
Barrick Gold, to me, is like Keanu Reeves. I just don't see the talent, even though his staying power suggests that many others do. To Reeves' credit, though, he's never muddied a performance with insider selling, confusing hedge positions, nor environmental controversy.
The gold down under
I see Newmont Mining as more of a Tom Hanks type, whose talent has notably improved over time. Newmont Mining dazzled audiences by consolidating its ownership of the world-class Boddington mine in Australia. The $1 billion deal with former stakeholder AngloGold Ashanti (NYSE: AU) grants Newmont Mining full exposure to a project that will yield 1 million ounces of gold annually. Like Barrick Gold, Newmont Mining expects expanding margins to accompany the resulting boost in production. After starting up this summer, Boddington is expected to reach full capacity after 12 months.
Although Newmont Mining's average realized copper price of $1.69 per pound in the first quarter was short of Barrick Gold's $2.93, Newmont Mining's cost basis of just $0.89 overwhelmed Barrick Gold's $1.32. Fortuitous hedging is one way to produce margins, but I much prefer the old-fashioned method of achieving sustainable low-cost production.
Newmont Mining tops this Fool's list of gold stars, and it forecasts 5.2 million to 5.5 million ounces of production at a cost of $400 to $440 per ounce (corresponding to Barrick's estimated co-product cost of $450 to $475). Since I recently decided that Goldcorp (NYSE:GG) and Kinross Gold (NYSE: KGC) should graduate into the elite club of major producers, that top spot is not issued lightly.
