Yellow Gold Rises Faster than Black Gold (GG, ABX, KGC)

We’ve now seen earnings out of gold giants Barrick Gold Corporation (NYSE:ABX) and Goldcorp (NYSE:GG), and after the close we’ll see earnings out of Kinross Gold Corporation (NYSE:KGC).  As you read through the releases, you’ll see why these are all higher.  You might even wonder why these are all so far off of highs.

Barrick Gold Corporation (NYSE:ABX) reported first quarter 2008 earnings today of $514 million, or $0.59 EPS, compared with a loss of $159 million, or $0.18 EPS, in the same period a year ago. Adjusted to account for one-time items, EPS would have been $0.62. Revenue for the quarter totaled $1.958 billion, nearly double first quarter 2007 revenue of $1.089 billion. Production costs rose to $501 per ounce, but the average realized price per ounce of gold hit $925. Analysts expected EPS of $0.60 and revenues of $2.24 billion.  Barrick shares are up 2% at $39.74 (52-week range $27.79 to $54.74).

Goldcorp (NYSE:GG) reported earnings yesterday of $229.5 million, or $0.32 EPS, up 84% from the same period last year. Goldcorp achieved a record-high realized price of $932/ounce of gold on production costs of $240/ounce. GG and ABX each gained about $0.50/share yesterday on the announcement. Goldcorp shares are up 3% at $37.79 (52-week range $21.00 to $46.30)..

After market close today, Kinross Gold Corporation (NYSE:KGC) reports first quarter earnings after market close today. Analysts are expecting $0.13 EPS on revenue of $335 million. Kinross shares are also up 3% before they have even reported (52-week range $9.87 to $27.40).

Yellow gold appears to be following the lead of black gold: the higher the price for the commodity, the better a gold miner’s results. The weak dollar moves the prices of both gold and oil higher. Rising production costs in gold mining also compare to rising production costs in petroleum. Commodity hedging is also factored into production costs. Interestingly, Goldcorp’s gold production is totally unhedged, and ABX reported a hedging loss of only $29 million. Analyst estimates for the June 2008 quarter are lower for both companies. That could be true, but only seems likely in a scenario where gold prices fall.

Paul Ausick
May 6, 2008