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Mergers, asset sales take a front seat for gold miners in Q1'19

As larger gold miners listed in North America posted a mixed bag of first-quarter results, mergers and potential asset sales factored largely in earnings calls, financial outcomes and production guidance.

Major deals that stood out in the first quarter included the January combination of Barrick Gold Corp. with Randgold Resources, with Barrick reporting its first quarter with added production from Randgold's mines in Africa. Also in January, Newmont Goldcorp Corp. announced a US$10 billion merger with Goldcorp, which closed mid-April. And after Barrick made a hostile bid for Newmont in February, the two majors decided in March to instead partner on their substantial Nevada gold operations.

The merger action drove talk about potential divestments that could see midtier miners, among others, pick up new operations. Barrick said during the quarter that it planned to sell about US$1.5 billion in assets, while Newmont flagged US$1 billion to US$1.5 billion in asset sales over the next couple of years.

The asset sales may not come quickly, however, as the CEOs of both miners said they were in no hurry to sell. "We're under no pressure to divest in any kind of a time frame," Newmont President and CEO Gary Goldberg said on an April 25 earnings call.

BMO analyst Andrew Kaip underscored that point, saying the pace of asset sales may disappoint investors.

"We see a growing list of assets for sale, but divestitures, in our view, are not likely to play out as quickly as investors expect," Kaip said in a May 14 research note on first-quarter earnings results in the gold sector. "Unlike a few years ago, asset sales are not required for balance sheet repair (unless you are Yamana Gold Inc.), so sellers can be more patient and realize better value, in our view."

As for the Nevada joint venture, it is widely expected to drive cost savings for both Newmont and Barrick. While some analysts are skeptical Barrick will hit its marks, Barrick CEO Mark Bristow reiterated in a first-quarter earnings call the company expects to deliver US$4.7 billion in net present value through the Nevada joint venture.

Net earnings fall

The impact of Barrick's merger with Randgold boosted first-quarter gold output by 30.3% to 1.4 million ounces. Still, net profit declined 29.7% year over year to US$111 million, or 6 cents per share.

Haywood analyst Kerry Smith told S&P Global Market Intelligence the quarter was "pretty good" for Barrick as it got more out of the Randgold merger than he expected. He also saw the joint venture boosting Barrick earnings. "We believe there is more upside from the incorporation of the Nevada assets, along with potential synergies from the JV," he said in an April 18 research note.

Newmont also reported a drop in earnings, down US$57 million to US$113 million, which it attributed in part to merger costs. Its production nudged up 2% to 1.23 million ounces.

Both Newmont's Goldberg and Barrick's Bristow highlighted a longer-term pick up in gold production thanks to the mergers. Bristow pegged Barrick production at between 5.1 million and 5.6 million ounces per year over the next half-decade, and Goldberg said Newmont could produce as much as 7 million to 8 million ounces of gold per year over the next seven years.

Turning to other large gold miners listed in North America, a number of them were also hit by falling earnings in the first quarter. Kinross Gold Corp. reported a 39% slump in net profit year over year to US$64.7 million as gold sales dropped 7.3% to 606,031 ounces. Agnico Eagle Mines Ltd.'s net profit fell 17.6% to US$37 million, while gold production inched up 2.3% to 398,217 ounces.

Among stronger earnings results, Kirkland Lake Gold Ltd. reported a 120% year-on-year jump in net earnings to US$110.1 million as gold sales climbed 58% to 232,929 ounces. Yamana, meanwhile, booked a US$4.1 million net loss, improving on a US$160.1 million net loss the year before that was driven by an impairment charge.