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Goldcorp now biggest gold miner in the world by market cap

News that Goldcorp is now bigger than Barrick by market-cap isn’t just a story about a company becoming ‘bigger’ than another company. Underlying this news is the fact that many companies are struggling to turn a profit with gold around the $1700 level.

This relates to a story we wrote about back at the start of August when Nick Holland, the head of Gold Fields Ltd, said:

The wave of rationalisation that is starting to emerge among the major diversified miners will soon spread to the gold sector, as soaring costs and labour shortages begin to squeeze margins…\

…Mr Holland criticised fellow gold producers for failing to include corporate and capital costs when publicising their profit margins, saying they were only fooling themselves and governments, who would duly seek to tap the industry for more taxes.

Mr Holland said rising energy, labour and production costs would virtually double costs in the next five years, and a gold price of close to $US2000 per ounce would be needed to keep pace.

If costs remain close to $US1600 where they have been in recent weeks, much of the industry would be “killed”.

That last line has turned out to be very prescient. A few day’s ago Barrick were out with their Q3 earnings and they disappointed, largely due to higher than expected costs of mining:

Total cash costs for gold are anticipated to be $575-$585 per ounce, compared to the previous guidance of $550-$575 per ounce, primarily as a result of higher cash costs from Australia Pacific and ABG. Net cash costs are expected to be $480-$500 per ounce, within the previous guidance of $460-$500 per ounce.

Reuters reports mining analyst John Ing commenting on the earrings from Barrick:

“That, together with disappointing earnings reflecting a narrowing of margins, really deflated enthusiasm for the world’s so-called leader among the gold miners,” Ing said.

Or in other words the cost of getting gold out of the ground has been more expensive than thought – a situation that can only really be rectified by a higher gold price or less supply.

As a result Barrick has now lost some 25% in share value this year, whilst Goldcorp’s share price has risen some 3.5% this year. Reuters reports the two companies market-cap as:

Goldcorp’s market cap was C$35.32 billion (US$35.47 billion) at the close on Tuesday, while Barrick’s market cap stood at C$35.30 billion. Newmont Mining Corp, the world’s second largest gold producer, is worth US$23.84 billion.

But what is quite odd, and again reflects the importance of the ‘out-of-the-ground’ costs is the difference that the two companies expect to mine this year:

Goldcorp lags Barrick in output. Toronto-based Barrick expects to produce some 7.3 million to 7.5 million ounces of gold this year, while Vancouver-based Goldcorp plans to produce some 2.35 million to 2.45 million ounces this year.

So Barrick expects to dig out of the ground some 200% more gold than Goldcorp and yet Goldcorp is now the larger company.

So even after gold’s huge run up it would appear that, at least for some mining companies, the price hasn’t run up nearly enough to keep pace with rising costs.

 

Link to this article: : http://www.goldmadesimplenews.com/mining/goldcorp-now-biggest-gold-miner-in-the-world-by-market-cap-8709/

Posted by on Nov 8 2012. Filed under Mining. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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