March 04, 2022
Gold rose 0.6% to US$1,921/oz this week, trending up for its fifth consecutive week, and reached as high as US$1,970/oz, as it looks to be breaking out of a previous trading range of US$1,700-US$1,900/oz that had held since 2021.
The Q4/21 results season wrapped up this week, with the rest of the majors reporting, including the largest producer, Newmont, with aggregate production trending up for the top eight majors, revenue light on a lower gold price yoy and net income mixed.
The producing and junior miners both rose, with the GDX up 2.8% and GDXJ up 4.8%, on the rise in the gold price although the Canadian juniors mostly declined, as equity market volatility continued to effect some riskier small cap companies.
Gold jumped 0.6% this week to US$1,921/oz, its fifth consecutive week of gains, and its second week above US$1,900/oz, including reaching a high at US$1,970/oz briefly, suggesting that it may be breaking out of a range from around US$1,700- US$1,900/oz that has held since 2021. While gold has seen a boost over the past week from surging geopolitical risk from Russia's invasion of Ukraine, the main underlying driver continues to be market concerns over a continued massive global monetary expansion which has been driving very high inflation. While the Fed appears likely to start raising interest rates as early as this month, we expect that its likely only gradual rate hikes will not be enough to curb inflation, which we anticipate will surprise to upside this year, offering continued support for the gold price.
The Q4/21 results season wrapped up this week, with the rest of the majors reporting, including the largest producer, Newmont, as well as Eldorado, Centerra, Nova Gold, Lundin Gold and Iamgold. The results showed a pickup after a reasonably weak Q3/21, with the aggregate production for the top eight producers (Newmont, Barrick, Agnico-Eagle, B2Gold, Yamana, Equinox, Iamgold and Equinox) increasing 3.0% yoy to 4.31mn oz, after a -1.6% decline yoy in Q3/21 (Figure 4). Revenue growth also rose, to US$9.60bn, by 2.0% yoy, after an -11.1% decline yoy in Q3/21 (Figure 5). Net income was weak, at US$1.15bn, down -45% yoy, and down qoq from US$1.17bn in Q3/21 (Figure 6). However, this was mostly because of a very high nonrecurring remediation and reclamation charge from Newmont, which suggests that the aggregate net income could rebound considerably by Q1/22. The spread between the average realized gold price, at US$1,795/oz and the all-in sustaining costs for the top eight majors, weighted by production, at US$1,052/oz, continues to remain high, at US$743/oz (Figure 7). While rising inflation so far in 2022 is likely to push up the AISC in Q1/22, the average gold price is also up substantially so far this year, which could offset this, so we could see this spread maintained or even increase in Q1/22.
Barrick's production for Q4/21 was near flat, down -0.2% yoy to 1.20mn oz Au, with Newmont up 1.5% to 1.55mn oz Au, and both saw increases in production qoq (Figure 8). For the mid-tier majors, Agnico-Eagle was up 0.1% to 0.50mn oz, B2Gold up 12.7% to 0.29mn oz, Yamana up 10.2% to 0.28mn oz and Equinox up 56.3% to 0.21mn oz. The smaller majors have seen yoy declines in production, with Iamgold down -9.5% to 0.15mn oz Au and Eldorado down -11.3% to 0.12mn oz Au. Most the group have uptrends in qoq production in recent quarters.
The realized gold price for the top eight majors declined yoy, from US$1,850- US$1,870/oz in Q4/20 to around US$1,795/oz in Q4/21. Eldorado was an exception, with an average realized gold price of just US$1,783/oz in Q4/20, for only a slight decline to US$1,776/oz in Q4/21. This decline in realized gold prices was the major cause of the decline in revenue growth yoy for Newmont, Barrick, Agnico-Eagle, Iamgold, Eldorado, with the strong production growth of B2Gold, Yamana and Equinox offsetting the gold price decline and driving revenue growth.
Newmont's production growth of 1.5% for the year has mainly been driven by gains at Nevada Gold, its joint venture with Barrick, by far its largest contribution to output, with growth of 12.4% yoy, with nine out of its thirteen projects seeing production declines over the quarter. All-in sustaining costs have also been increasing at nine of its thirteen projects over the past year (Figure 11). For the other majors, cost increases have been mixed, with moderate gains for Barrick and Eldorado, major multi-quarter upswings for Agnico-Eagle and Iamgold, declines for B2Gold and Yamana, while Equinox's AISC is up yoy, but trending down since Q1/21 (Figure 12)
The net income of the major has been mixed and mainly driven by extraordinary items. Barrick saw a jump in profitability on non-core items, and Newmont saw a plunge on non-recurring remediation and reclamation, and most of the other majors saw revenue substantially affected by non-recurring items in either Q4/21 or Q4/20 (Figure 13). The share price of the major gold producers have risen in recent months as the gold price has picked up, and over the past year industry giants Newmont and Barrick are up 23% and 17%, respectively, while of the mid-tier producers Yamana has the strongest gains, up 22%. The other majors have still seen losses over the past year, but by less than 10%, with Equinox down -7%, Agnico, -8% and B2Gold, -9% (Figure 14). Production growth guidance for 2022 for Newmont is 5.1%, rising to 6.2mn oz, with Barrick expecting a slight -0.8% decline to 4.4mn oz. The largest growth by far is for Agnico-Eagle, although this is not organic, with most of the gain from its merger with Kirkland Lake Gold. Equinox expects the second largest increase in production, up 10.9%, with Iamgold targeting a 0.7% gain and the other majors declines, with B2Gold down -3.4%, Yamana down 1.1% and Eldorado declining -0.2% (Figure 15).
The producing gold miners were mixed this week as gold rose but equity markets remained volatile (Figure 16). The last of the Q4/21 results from the majors were reported, including the largest producer, Newmont, and Eldorado, Centerra, Lundin Gold and Iamgold. Barrick reported an increase in its dividend payout and a share repurchase program, Pretium announced that its acquisition by Newcrest was expected to close on March 9, 2022, Alamos reported that it would sell the Esperenza gold project to Zacatecas Silver and SSR appointed Ms. Leigh Ann Fisher, previously holding executive positions at Alcoa, to its Board of Directors (Figure 18).
The Canadian juniors were mostly down as equity markets remained volatile, especially for riskier small caps (Figure 17). For the Canadian juniors operating mainly domestically, Kinrossâ€™s acquisition of Great Bear was completed, New Found Gold reported two sets of assay results from the Keats main zone at the Queensway project, Artemis Gold announced a credit-approved commitment for a $360mn project loan facility for Blackwater and Osisko Development reported drill results from San Antonio (Figure 19). For the Canadian juniors operating mainly internationally, Orezone reported drill results from Phase Two at Bombore, Prime Mining reported the first drill results from Guadalupe West and an update on Guadalupe East, Novo reported rock chip sampling from the Pilgrims Rest Gold Mine at Station Peak in the Egina district and Lion One announced that it would purchase two additional rigs bringing the total to five, and expand its on-site analytical laboratory (Figure 20).
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