Tuesday, 24 February 2015

Barrick Gold and Newmont don't displace Randgold in my affections: here's why

The last time I wrote about two gold behemoths Barrick Gold and Newmont I concluded:

'Barrick Gold remains a turnaround play.  As a large cap gold market proxy it is probably better than Newmont Mining but that is not saying too much.  Looking at these larger cap names I keep on concluding...roll on the Randgold Resources results next week'

I have waxed lyrical about the latest Randgold numbers earlier in the month (link here) but it was quite interesting to see the relative performance spreads since I wrote that report in early August last year.  Randgold (represented by its US ADR under the 'GOLD' ticker) materially outperformed Barrick Gold...

...and Newmont too (although the gap was somewhat smaller - and has closed up a little over recent weeks).  

So is there anything of interest happening at Barrick Gold and (especially) Newmont?

Well first Newmont.  There was some improvement in underlying costs...

...but whilst there was some free cash flow generation there was also fairly negligible forward growth as noted below:

Did you see the comments above about lower grades in Africa (and admittedly higher grades in APAC)?  Grade has always been one of the great strengths of the Randgold story...and weakness of the Newmont one.  Interestingly Barrick Gold had a chart on it:

The Barrick Gold grade looks a little better (although still a far cry from Randgold's multiple mines at 4+g/t) and then they throw in low production costs too:

Impressive stuff. So Barrick Gold is the share to be looking at then?  Well the numbers were blighted by impairments and there was still no free cash flow generation...

...and rather half-hearted forward production guidance ('production in excess of 6m oz in both 2016 and 2017' hardly inspires confidence).  

And then suddenly it clicked:it is amazing what you can do with numbers, especially when there are big write-downs and multiple distorting factors.  This Seeking Alpha report captured it nicely by contrasting on their methodology proper 'core costs'.  Suddenly Barrick Gold and Newmont do not scan quite so well...

CompanyQ4 Core Non-tax CostsQ4 Core Costs
Randgold (NASDAQ:GOLD)Under $1000 per gold-equivalent ounceAround $1000 per gold-equivalent ounce
BarrickAround $1100 per gold-equivalent ounceUnder $1500 per gold-equivalent ounce**
NewmontAbove $1100 per gold-equivalent ounceAbove $1200 per gold-equivalent ounce
GoldcorpAround $1200 per gold-equivalent ounceAbove $1500 per gold-equivalent ounce**
KinrossOver $1300 per gold-equivalent ounceAbove $1800 per gold-equivalent ounce**

Hard for me not to conclude anything from this other than to prioritise (as I have so far) the Randgold holding in the precious metal space.  

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