Earnings Season Nears for Senior Gold Producers

With several of the world’s largest gold producers scheduled to report fourth quarter earnings later this week, Stifel Nicolaus discussed its outlook for the companies in a report to clients published this week:

Goldcorp (GG) – reports Wednesday after the market close

- “We forecast 4Q11 EPS of $0.56, below consensus’ $0.60 and 3Q11’s $0.57. We note high-growth companies have inherent delivery risks, which are almost always short term in nature. Irrespective of likely quarterly volatility, Goldcorp, with its attractive 60% production growth profile by 2015 from assets in the Americas, remains our top pick among the seniors. We maintain our Buy rating and US$65/share target price.”

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Kinross Gold (KGC) – reports Wednesday after the market close

- “We forecast 4Q11 EPS of $0.19, below consensus’ $0.21 and 3Q11’s $0.24. Kinross has the highest growth potential (65% by 2016E), but mainly from assets located in risky jurisdictions (i.e., Russia, Mauritania, and Ecuador, versus Goldcorp’s in the Americas). We note that while Kinross is relatively undervalued, the constant stream of bad news and mis-steps has continued to weigh on the stock. We maintain our Buy rating and US$17/share target price.”

Barrick Gold (ABX) – reports Thursday before the market open

- “We forecast 4Q11 EPS of $1.21, below consensus’ $1.27 and 3Q11’s $1.39. Barrick remains attractive for its steady cash flow delivery and valuation from a solid 8 mmoz production base, in our view. We calculate that for every $100/oz increase in gold prices, Barrick’s cash flow increases by $500mn, or $0.50/share. We maintain our Buy rating and US$70/share target price.”

Newmont Mining (NEM) – reports Friday before the market open

- “We forecast 4Q11 EPS of $1.17, below consensus’ $1.27 and 3Q11’s $1.29. We reiterate our Hold rating.  Newmont’s gold-price linked dividend makes it attractive for income investors who want gold exposure, but it comes at the expense of growth. In our view, the risk of Newmont making a dilutive acquisition has increased as all avenues for its ‘marginal’ growth prospects are incrementally becoming grimmer. If Newmont’s troubled Conga j/v and Hope Bay new mine builds are suspended indefinitely, management plans on diverting the capex earmarked for these projects for expansion opportunities at other assets in ‘high risk’ jurisdictions, including Indonesia (Batu Hijau) and Ghana (Ahafo and Akyem), countries from which negative news has been released within the last week.”