Barrick Gold, Yamana Drop on Earnings Results

Gold shares turned lower on Wednesday after two of the world’s largest gold producers reported slight earnings misses. The sector also came under pressure due to weakness in precious metals and the broader equity markets.

The Market Vectors Gold Miners ETF (GDX) fell $0.86, or 1.9%, to $45.58 per share in mid-day trading, COMEX gold futures slid $11.30, or 0.7%, to $1,651.10 per ounce, and the S&P 500 Index dipped 0.4% to 1,399.54.  Financial markets headed south after the disappointing ADP Employment report, which raised further concerns about the state of the U.S. labor market.

Barrick Gold (ABX), the world’s largest gold mining company, reported first quarter adjusted earnings per share (EPS) of $1.09, slightly below the $1.10 consensus estimate among Wall Street analysts.  On the positive side, the Canadian-based gold miner also raised its dividend by 33% to $0.80 per year.

Commenting on Barrick’s results, TD Securities analyst Greg Barnes offered some words of caution in his report this morning: “While the boost in the dividend could appease some investors and does reflect management confidence in the company’s outlook for growing cash flow, the ongoing cost challenges at Pascua Lama (combined with a potential delay in project start-up) is likely to reinforce concerns about the wisdom of proceeding with development on large longer term development projects during a period of rampant cost inflation. ABX’s next two large projects are both very significant projects – Cerro Casale capex estimated at US$6.0 billion (100% basis) and Donlin Creek capex is estimated at US$6.7 billion (100% basis).”

Despite the commentary, Barnes did not make any changes – at least not yet – to his Buy rating and $60.00 price target on Barrick Gold.  Nonetheless, ABX was one of the worst performing gold stocks today, as it tumbled $1.06, or 2.6%, to $39.38 per share.

Yamana Gold (YRI.TSX, NYSE: AUY) also announced its first quarter results, which included adjusted EPS of $0.24 per share – near the low end of analysts’ estimates.  GMP Securities analyst Craig West noted in a report to clients that although Q1 gold production of 279,000 ounces was in-line with his forecast, cash costs were higher than expected.

“We characterize YRI’s Q1 as an ‘ok’ start to the year;” West wrote, ”we note the benefit the new Mercedes mine had on operating results, offsetting weakness at several other operations.  We recognize Q1 is expected to be the weakest quarter this year, with improving results (production ramping ­, costs trending down) anticipated through the rest of the year.”

Shares of AUY retreated $0.35, or 2.3%, to $14.39 in mid-day trading.  Other notable decliners included GDX components AngloGold Ashanti (AU), Goldcorp (GG), and Newmont Mining (NEM).  AU dropped by 2.5% to $33.70, GG by 1.5% to $38.01, and NEM by 2.7% to $46.76 per share.