Canadian gold mine companies pull back with bullion at 5-year low
Barrick and Goldcorp cut dividend 60%, Barrick sells assets
With gold selling at a five-year low, Canada's gold companies are selling off properties and cutting costs in an effort to stay profitable.
Barrick Gold Corp., the world's largest gold producer, announced Wednesday it would cut its dividend by 60 per cent after reporting a $9-million loss in the second quarter. The dividend falls from five cents a share to two cents a share.
Barrick is racing to pay down debt and has been selling assets -- $2.45 billion to date – to reduce costs.
"This is not only about reducing debt," co-president Kelvin Dushnisky told investors during a conference call Thursday. "We want a portfolio focused on high quality gold assets and growth projects in our core regions of the Americas."
The Toronto-based company said it plans a further $2 billion in cuts by 2016, including possible sale of its U.S. properties in Nevada and Montana.
Nor is Barrick the only gold company to cut its dividend. Goldcorp, which on July 30 reported net earnings of $65 million or 8 cents per share, also cut its dividend by 60 per cent.
"That would be normal for Barrick and Goldcorp," says John Ing, CEO of Maison Placements. "By reducing their dividend, they have cost containment."
Where will gold go?
After hitting a high of $1,785 US an ounce in 2012, the price of gold was in the $1,090 US range on Thursday, with many analysts predicting it will move lower.
With the U.S. Federal Reserve likely to raise rates sometime later this year, investors may prefer to park their money in U.S. dollars, which have the potential to earn interest, rather than gold, which costs money to store.
As a rate rise approaches, the U.S. dollar will likely get stronger, making it ever more attractive than bullion.
Goldman Sachs analyst Jeffrey Currie has predicted gold will drop below $1,000 per ounce by the end of this year.
Ing is not so bearish on gold, believing it's near the bottom now.
But the low price makes it critical for Canada's gold miners to cut their production costs per ounce.
"Around $1,200 is the break-even point for a lot of gold miners," Ing said, adding that some junior mine companies, which have higher costs, might be looking at mergers.
Closing, selling mines
"The big companies have the ability to close mines and put them up for sale," he said. Many mines become less efficient as they age, resulting in a higher per-ounce production cost.
Barrick recently sold its Cowal mine in Australia as well as a stake in its Zaldívar copper mine in Chile and Goldcorp sold its 26 per cent interest in Tahoe Resources.
And they were able to attract buyers, as companies are seeking out mining assets being sold in the face of low commodity prices.
Some companies are reducing their production outlooks for the year.
Barrick now says it will produce 6.1 to 6.4 million ounces, revised downward from 6.2 to 6.6 million ounces.
IamGold, which also reported Wednesday, reduced its production estimate for 2015 to 780,000 to 815,000 ounces, in part because of a seismic event that led to an accident at the Westwood mine in Quebec.
IamGold CEO Steve Letwin said the company has to do more to cut costs "in this gold price environment."
"As we optimize our mine plans, we continue our efforts to further reduce operating costs and sustaining capital. Additionally, we are reviewing our future development projects."
The company has suspended talks to buy a larger stake in its Sadiola mine.
Goldcorp, however, which has improved its liquidity, has boosted its production guidance to between 3.3 and 3.6 million ounces.