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Barrick Gold (ABX), Newmont (NEM) Targets Raised, CIBC Updates “Top Picks”
July 6, 2012 1:18 PM EDT
With the second-quarter earnings season arriving later this month, CIBC World Markets updated its price targets and ratings this week on a number of gold and silver stocks.
Among the large-cap gold miners, CIBC raised its price target on Barrick Gold (ABX) to $63.00 from $60.00 but maintained its Sector Performer rating. In its report, the firm noted that “Due to the expected production declines at Goldstrike, Cortex and Veladero previously flagged by management, we anticipate Q2/12 gold production to decline 15% versus Q1 with cash costs biased higher as well. Operationally much will therefore hinge on the second half 2012 if Barrick is to achieve its current full-year guidance of 7.3-7.8 Moz. Based on our numbers, we see little cushion in this guidance number should any operational challenges arise.”
CIBC also raised its price target for Newmont Mining (NEM), to $75.00 from $74.00, but maintained a Sector Performer rating. “Newmont’s Q2 production is expected to be similar to Q1, with likely a slight improvement at Batu Hijau and a flat trend at Boddington,” the firm wrote. “We are forecasting gold production of 1.2 million oz. at average co-product costs of $650/oz. Copper production is expected to come in at 36 Mlbs. at $2/lb.”
While the firm turned more positive on Barrick and Newmont, neither was included in its list of “Top Picks.” The list instead was comprised of AuRico Gold (AUQ), Belo Sun Mining (BSX.TSX), CGA Mining (CGA.TSX), Franco-Nevada (FNV), Goldcorp (GG), Queenston Mining (QMI.TSX), and SEMAFO (SMF.TSX). In addition, the only silver stock included was Silver Wheaton (SLW). CIBC rated each of these companies at Sector Outperformer.
On a sector-wide basis, CIBC noted that “Our outlook for the upcoming earnings reporting season is shaped by factors including weaker oil and by-product prices, a stronger U.S. dollar, and declining grades. The latter may be the swing factor under a scenario where lower input costs are offset by the impacts of a stronger U.S. dollar in foreign lands where labor represents a significant component of expenditures. We note that in the absence of high-grade new deposits having come into production recently, this leverage is a non-factor. In this report, we show that the average grade for mines that have been in continuous operation since 2005 continues to decline quarter after quarter. With lower realized prices for copper, silver, lead, and zinc, by-product credits will offer less of a cushion from the impact of labor cost and foreign exchange on cash costs. Nevertheless, costs on a per tonne basis show far more sensitivity to input costs, and in our view, paint a more accurate picture of cost trends in the industry that continue to be up. We believe overall, Q2 production figures will show a better trajectory against full-year forecasts than Q1, with slightly higher to flat operating costs.”