Gold miners may see margins shine as energy, labor costs edge lower

Gold miners are set to report healthier margins for the fourth quarter as higher energy and labor costs, which dented bottom-lines for much of 2022, are expected to ease.

All-in sustaining costs (AISC), an industry metric that reflects total expenses, jumped by a third in the last four quarters at top miners Barrick Gold Corp and Newmont Corp, but they are now projected to fall.

"Costs on the gold side are down a little bit, so we should see better margins in Q4," said Carey MacRury, analyst at Canaccord Genuity.

"So, it's really just higher production, slightly lower cost and the flat gold price," he said, adding he expects margins to have improved in the October-December period compared to the previous quarter.

Miners also grappled with wet weather, COVID disruptions, labor shortages that were sometimes linked to the pandemic, and supply chain constraints, Bernstein analysts said, adding firms should have good visibility on labor shortages in 2023.

CONTEXT

Gold, considered a safe-haven asset in times of uncertainty and inflation, touched the $2,000 mark after Russia invaded Ukraine in February 2022, but fell 21% in the following eight-months as the Federal Reserve hiked interest rates.

"Most of the damage (from interest rate hikes) was done in 2022," said MacRury, adding that he expects margin expansion in 2023 on higher gold prices.

Barrick's gold output has been on a steady decline, falling for at least three consecutive years.

However, Barrick expects higher grades to flow through 2023 from its Nevada Gold Mines, a joint venture between the company and Newmont.

"Supply chain issues are fixable to a certain extent, but if social unrest persists or the Ukraine war escalates further, then the miners may struggle to meet guidance," said Bernstien.

Barrick is scheduled to report quarterly results on Feb. 15, while Newmont is expected to post on Feb. 23.

FUNDAMENTALS

Company

Refinitiv Q4 Refinitiv Q4 EPS

revenue estimate estimate

Newmont Corp $3.1 billion (down 47 cents (down

9% YoY) 39% YoY)

Barrick Gold Corp $2.6 bln (down 16% 11 cents (down

YoY) 63% YoY)

WALL STREET SENTIMENT

Recommendation

Company Median

Price

Target

Newmont Corp Ten of 24 analysts rate the $57.79

stock "buy" or higher, 13

"hold" and one "strong-sell"

Barrick Gold Corp Eleven of 17 analysts rate $22.32

the stock "buy" or higher

and 6 "hold"