August 26th, 2022 | 12:59 CEST
Precious metals producer Manuka Resources facing transformation, what are Barrick Gold and Newmont doing?
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"[...] Our projects are at the initial, high reward exploration stage. [...]" Humphrey Hale, CEO, Managing Geologist, Carnavale Resources Ltd.
Newmont - Weak quarterly figures
Newmont is the world's leading gold company and produces copper, silver, zinc and lead as by-products. The projects are distributed worldwide, so that one is diversified and positioned in case of local problems. However, the Company, which is listed in the S&P 500 Index, has recently fallen significantly under the wheels. At its peak, the stock lost more than 50% of its value. The reason for the declines were rising costs and a simultaneously falling gold price. With gold seasonally gaining in value from the fall onwards, now is the time to take a closer look at Newmont.
The quarterly figures on July 25 caused another decent slide in the share price when analysts' expectations were missed, in some cases by a wide margin. Production was up from the previous quarter to 1.83 million gold equivalent ounces, but earnings per share were only USD 0.46. A fat minus compared to USD 0.83 in the previous year. One can see above all where the shoe pinches in terms of total costs. While production in Q2 2021 still cost USD 1,035, this year, it was USD 1,199, significantly reducing the profit.
When CEO Thomas Palmer sold shares at the beginning of August, it was not a positive signal. It was only 11,000 shares, a fraction of his total holdings, but a purchase would certainly have been better for the Company. The question is how to contain costs. For now, the investment costs have been brought down. The stock has not even been able to benefit from the rising gold price lately and is currently at USD 44.80. It seems as if the support area around USD 43 could hold as support. If not, a larger support zone between USD 33 and 40 is waiting.
Manuka Resources - Transformative acquisition
Australian precious metals producer Manuka Resources owns two producing projects that have already produced precious metals at the Company's leach facility. The Wonawinta project makes Manuka the largest silver producer in Australia. The mineral resource estimate is for approximately 51 million ounces of silver, plus an additional 207,200t of lead. Production is underway and there is a stockpile of 515,000t of rock from the mine available for processing. The second project is the Mt Boppy gold project, where production is currently halted. The open pit mine has produced approximately 500,000 ounces of gold to date at a gold grade of approximately 15g/t. Mining is expected to resume in the first quarter.
On August 1, the Company announced the acquisition of Trans Tasman Resources Limited (TTR). With this, Manuka takes over the South Taranaki Bight, which hosts 3.8 billion tonnes of iron sand, vanadium and titanium, making it a Tier-1 resource. The preliminary feasibility study has been successfully completed and now it is just a matter of financing. Given the numbers, this should not be a hurdle. 5 million tons of iron ore can be produced per year, with a mine life of almost 20 years. The costs are stated at 20 USD/t, including transport the maximum is 30 USD/t, which is very favorable. Currently, the market price is over USD 105. That would put the current profit per year at USD 375 million, provided the iron ore price remains stable.
The Company believes that it has one of the lowest CO2 emissions compared to other iron ore producers. In addition, there is the possibility of producing an additional 10t of vanadium per year, which would also make it the largest producer outside Russia and China. Sales would amount to USD 140 million at a current vanadium price of around USD 7 per pound. Plans call for the project to be in production by the end of 2025. Under these conditions, the credit facility with TransAsia Private Capital Limited was extended by one year on August 24. Thus, there is likely to be no need for capital in the coming months. The stock has not yet reacted at all to this news and is trading at AUD 0.16.
Barrick Gold - Outperforms direct competition
Barrick Gold has fared well against its biggest competitor, Newmont. The stock has followed the movements in the gold price. This is despite CEO Mark Bristow indicating that the Company may not be able to meet its cost guidance due to inflation. However, it did beat analyst expectations on earnings. The market is nervous and it is small subtleties that differentiate the two largest gold producers. We take a closer look at Barrick's numbers.
The 19% increase in profits already looks much better than Newmont's. The main driver was 25% higher copper production YOY. Barrick's total costs per ounce also climbed, but not quite as much as its competitor. In the first half of the year, costs were USD 1,188 per ounce, above management's forecast. Higher production is expected to drop the increased costs. The net income of USD 0.27 per share represents an increase of USD 0.04 YOY.
The dividend of USD 0.20 was maintained and this despite the fact that investments increased by 23%. Again, there is a difference with Newmont, which reduced its spending. The stock has formed an initial uptrend and is currently trading at USD 16.50. If the stock no longer falls below USD 15.09 on a closing price basis, the next resistance awaits at USD 18.21. The dividend yield at the current level is around 4.8%.
Rising costs and falling gold prices are poison for gold producers. However, if the gold price picks up, gold producer stocks will quickly jump. This is true for both Newmont and Barrick Gold. The current situation is different for Manuka Resources, which may have opened a new chapter in the Company's history with its latest acquisition. The new project could become a real cash cow. The current valuation does not even begin to reflect the potential.
Conflict of interest
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