Fool's Gold Report: Barrick Gold Drops After Earnings, Newmont Rebuff; Will Goldcorp Fare Better?

Gold moved gently lower today, but the real action was on the earnings front.

Apr 30, 2014 at 5:20PM

Wednesday was another relatively calm day for the gold market, as gold investors didn't see any impetus to change their positions in light of the expected (and now realized) move by the Federal Reserve to continue tapering its quantitative easing program. But even as gold prices moved gently lower, most of the attention was on miners announcing earnings, with Barrick Gold (NYSE:ABX) results highlighting the pressure on the industry. Even as Barrick Gold's attempts to merge with Newmont Mining (NYSE:NEM) were formally rebuffed, investors are wondering whether Goldcorp (NYSE:GG) will do better than Barrick did when it announces results tomorrow morning.

Source: Barrick Gold.

What happened with Barrick Gold?
Barrick Gold announced its first-quarter results this morning, and the numbers reflected the huge decline in gold prices since the end of the year-ago quarter. Profit fell by 90% as average realized gold prices plunged by more than 20%, to $1,285, and the prices that Barrick Gold received for copper production were also down about 15%. At the same time, cost-cutting efforts have led Barrick Gold to sell a substantial portion of its assets, including properties in Nevada and Australia, along with a reduction in its stake in African Barrick Gold. As a result, gold production fell 12% from the year-ago quarter, and although Barrick Gold reaffirmed its production guidance for 2014, shareholders still aren't happy with the state of the gold market and its impact on the miner.

Unfortunately, Barrick Gold won't be able to count on a merger with Newmont Mining to help end its funk. Newmont Mining put an end to speculation of a friendly combination earlier this week, issuing a press release that revealed the company notified Barrick Gold by letter last week that it would not to pursue the merger further. That doesn't eliminate the possibility of a hostile bid, but as we saw with Goldcorp's failed attempt to buy Osisko Mining, hostile takeovers can be unpredictable and lead to complications if other companies get involved.


Canadian Malartic mine. Source: Osisko Mining.

Goldcorp is still reeling from having had Osisko Mining snatched from its hands, as its hostile bid was thwarted by two white knights. Yet even though falling gold prices will have an impact on Goldcorp earnings, investors hope that the company can cut its all-in sustaining costs and avoid the full brunt of the drop in gold prices over the past year. Still, with a dispute with local landowners surroundings it Los Filos mine in Mexico, Goldcorp has some short-term issues to deal with, as well as the bigger-picture problems in the industry.

How metals moved today
June gold futures fell $0.40 per ounce Tuesday, settling at $1,295.90. July silver futures dropped $0.36 to settle at $19.17, while platinum-group metals were narrowly mixed.


Today's Spot Price and Change From Previous Day


$1,293, down $3


$19.18, down $0.27


$1,424, down $3


$807, up $3

Source: Kitco. As of 4 p.m. EDT.

Earnings will continue to get the lion's share of attention from the gold-investing community. But also look for unexpected events on the macroeconomic or geopolitical fronts, as they could lead to surprise moves in either direction.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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