Shares of gold mining stocks Goldcorp (GG +0.00%), Eldorado Gold (EGO 0.10%), and Yamana Gold (AUY +0.00%) rose 14%, 20%, and 30%, respectively, in January, according to data from S&P Global Market Intelligence.
With the price of gold climbing 3.46% in January, it comes as little surprise that all three mining stocks also rose last month. In all three cases, however, investors were moved to pick up shares for reasons that outshine a rise in the price of the metal. Let's dig in deeper and see what other forces were at play.
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For Goldcorp, a golden acquisition
In one of the gold industry's most notable news stories last month, Goldcorp announced that it had entered into a definitive agreement with Newmont Mining (NEM +0.25%) in which Newmont will acquire all outstanding shares of Goldcorp's common stock in a deal valued at $10 billion. Newmont will acquire each Goldcorp share for 0.3280 of a Newmont share, representing a 17% premium based on the companies' 20-day volume weighted average share prices. The transaction is expected to close in the second quarter of 2019 and has already been approved by both companies' boards of directors.
Over the next two years, the newly formed entity, Newmont Goldcorp, is targeting divestitures of $1 billion to $1.5 billion in an attempt to optimize gold production and achieve a consistent annual level of 6 million to 7 million ounces. For some context, Newmont and Goldcorp reported gold production of 5.3 million ounces and 2.6 million ounces, respectively, in 2017. According to the company's press release, the transaction is expected to generate up to $100 million in annual pre-tax synergies.
Check out the latest Newmont earnings call transcript.
Investors also responded favorably to Goldcorp's announcement of its preliminary Q4 2018 earnings and its 2019 outlook. Exceeding its guidance, Goldcorp achieved Q4 gold production of 630,000 ounces, and it expects to report all-in sustaining costs (AISC) for 2018 of $850 per gold ounce, which is in line with guidance. In the coming year, Goldcorp expects to achieve gold equivalent production of 3.3 million ounces to 3.7 million ounces -- an increase over the 3 million ounces it expects to report for 2018; moreover, it forecasts 2019 AISC per gold ounce between $750 and $850.
Eldorado talks Turkey, and 2019
Shrugging off Eldorado's mid-January announcement of its 2018 gold production and preliminary cash costs, investors responded to the company's update on the Kisladag gold mine in Turkey as well as its gold production and financial guidance for 2019. In Q1 2018, Eldorado's management chose to suspend operations at Kisladag so it could examine processing options. After several months of evaluation, management decided to advance a mill project at Kisladag, and according to the company's press release, since the advancement of the mill project, "gold recovery from the leach pad increasingly exceeded expectations." Moreover, management believes that the resumption of mining and heap leaching at Kisladag will provide the company with the flexibility to shore up its balance sheet in 2019.
Regarding the company's three-year outlook, management guided for gold production in each of the next three years to be higher than the 349,147 ounces it achieved in 2018, and AISC lower than the $990 per gold ounce, which it booked in 2018. From 2019 to 2021, Eldorado foresees average annual gold production between 420,000 and 450,000 ounces, and it forecasts average annual AISC per gold ounce between $867 and $967.
Yamana's 2018 was paved in yellow brick, and the road ahead may be the same
Rushing to pick up shares in the second half of the month, investors celebrated Yamana Gold's mid-January presentation, which provided preliminary financial figures for 2018 and a glittering glimpse into 2019.
According to management, the company will report gold equivalent ounces (GEO) production that exceeds expectations. Whereas management had originally guided for GEO production of 1.013 million ounces, it now expects to report GEO production of 1.041 million ounces -- a 16.7% increase over the 892,000 ounces that it reported in 2017. And thanks to improved efficiencies at Chapada in Brazil and other mine sites, management expects to generate a wider margin. While the company reported AISC of $827 per GEO in 2017, management forecast AISC of $725 to $745 for 2018.
Transitioning to the days ahead, Yamana provided additional cause for investors to rejoice. Management forecast GEO production of 1.08 million ounces and 1.15 million ounces in 2019 and 2020, respectively. Cerro Moro in Argentina, the company's newest mine, is operating at a better-than-expected level. According to management's presentation, in Q3 2018, Cerro Moro achieved "production run-rates already at levels needed to meet guidance for 2018 and 2019, and also with costs below the levels guided for both years."
Check out the latest Yamana and Eldorado earnings call transcripts.
The golden takeaway
It comes as no surprise that many gold mining stocks jumped in January with the rising price of the metal. For Goldcorp, however, the stock's rise is closely tied to news of the pending transaction with Newmont -- a deal that the company believes will result in the formation of the "world's leading gold company."
Regarding Eldorado, investors should hardly interpret the stock's movement as an indication that it's attractive, for the ambiguity surrounding the company's Skouries mine in Greece remains a valid concern.
On the other hand, with the development of Cerro Moro, Yamana is apparently succeeding in bringing its plan of maximizing shareholder value to fruition.
