Earnings season for gold and mining companies is here

The third-quarter earnings reporting season is well underway, and several mining companies have posted their results. Analysts are weighing in on those results, with the general view on the sector being mixed, even as the gold price continues to struggle to break out of its recent range.

Franco-Nevada

Franco-Nevada beat consensus estimates handily and now expects to reach the higher end of its 2020 guidance range in production and oil and gas revenue if its Candelaria operations resume production soon. The company posted revenue of $280 million, compared to the $244 million RBC analysts had been expecting. Contributions from the Hemlo property drove the higher revenue on benefits from $13 million in royalties earned in previous periods and Candelaria.

Franco-Nevada reported adjusted earnings of 80 cents per share, which was well ahead of the consensus at 61 cents. Free cash flow before working capital was $95 million, also beating RBC’s estimate of $81 million. Higher capital spending took a bite out of the company’s higher revenues. Franco Nevada’s previously announced Alpala royalty acquisition amounted to $100 million, and the company also disclosed a $31 million royalty acquisition from Freeport and a $5 million additional investment at Salares Norte.

The company’s net cash amounted to $467 million, compared to the $379 million it had during the second quarter. Franco-Nevada has $1.1 billion available on its credit facilities and issue 145 million shares under its ATM program for net proceeds of $21 million. RBC rates the company at Sector Perform.

Iamgold Corporation

RBC analysts were slightly negative on Iamgold’s third-quarter results. The company’s operating results were ahead of RBC’s estimates but below consensus. Iamgold processed higher-grade Saramacca ore than expected despite the stoppage at Rosebel. After the previously reported seismic activity at Westwood, Iamgold reduced its 2020 guidance and withdrew its 2021 guidance. It also suspended underground operations at Westwood until the completion of the investigation.

Iamgold hedged about 25% of its 2021 production at a weighted collar pricing of $1,745 to $2,875 an ounce, which RBC said is a key period of Cote Gold construction efforts. The firm sees Iamgold stock as greatly discounted compared to its peers but balanced by low operating visibility, high execution risk and longer-dated catalysts. RBC rates the company at Sector Perform.

Kinross Gold

The firm’s initial impressions of Kinross Gold’s results were slightly positive driven by cash generation that beat consensus estimates. Annualized free cash flow / enterprise value stood at 9.9% without support from the standard one-time items. Kinross Gold’s operating results were a little below consensus due to maintenance and lower-grade ore at Paracatu and lower-grade sequencing at Round Mountain.

In line with Kinross’ full-year guidance and previously reported growth, RBC analysts expect its operating results to improve during the fourth quarter. They look for sustained high cash generation and rate Kinross Gold at Outperform.

Pan American Silver Corp.

Pan American’s third-quarter earnings results missed consensus estimates, and RBC analysts looked for a negative reaction in the company’s stock. However, the stock has since climbed higher than where it was trading at before the earnings report.

Although Pan American reported weaker-than-expected earnings results, it continues to de-lever its balance sheet, paying down $110 million in the third quarter and $30 million since then. Pan American also boosted its divided and reduced its silver guidance. Lower silver output and higher costs drove the earnings miss. Weaker gold output mostly reflected replenishment of the company’s leach pad inventory, which had been drawn down during the second quarter.

Pan American exited the third quarter with $232 million in cash and short-term investments and $90 million drawn on its $500 million revolving credit facility. RBC rates the company at Outperform.

Royal Gold

Royal Gold reported earnings results that were about in line with expectations after the pre-release of stream sales, which amounted to about 70% of total sales. Adjusted earnings amounted to 82 cents per share, compared to RBC’s estimate of 81 cents per share. Operating cash flow was $108 million, compared to RBC’s estimate of $101 million.

Development of the Khoemacau property is still on track with the concentrate shipments set for late in the third quarter of 2021. Future milestones include improving production from Cortez late this year and the advancement of its expansion.

Centerra Gold

Centerra Gold reported adjusted earnings of 68 cents per share, beating the consensus of 40 cents. Consolidated production amounted to 241,000 ounces, which was 18% higher than Scotiabank’s estimate. Higher grades and throughput at all mines drove the result. Centerra Gold reiterated its guidance of 740,000 to 820,000 ounces but reduced its cost guidance 15% due to lower operating costs at Mt. Milligan and Oksut.

Scotiabank said Centerra will have among the highest free cash flow yields of the sector at 22% next year and 30% in 2022, based on the spot gold price. The company also has $484 million in cash and a $500 million undrawn revolving line of credit. Scotiabank rates Centerra Gold at Sector Outperform with a C$18 per share price target.

Premier Gold Mines

Premier Gold reported in-line earnings results of 1 cent per share. Lower cash costs of $673 per ounce offset the lower sales of 15,700 ounces of gold. Costs at Mercedes were $535, driving the lower-than-expected cash costs after declining from $1,274 per ounce.

The company pre-reported production of 19,300 ounces of gold during the third quarter. Premier Gold ended the third quarter with $51.9 million in cash. It expects to close the purchase of the Getchell property during the fourth quarter. Scotiabank continues to rate Premier Gold at Sector Outperform with a C$4 per share price target.

By Jacob Wolinsky, valuewalk.com