Topics in this section: - Precious-metal miners may see sunnier skies despite headwinds - AngloGold, Gold Fields, Sibanye among sectors' top performers - Determining which metal is most precious of all - Free cash flow may peak in 2019, enable M&A - Capital spending to plunge 60% in 2019 vs. peak - Gold over $1,000 means cash margins stay positive - Gold's 2019 output may fall to decade-low - Gold miners' revenue growth may slow in 2018-19 - Mirror, mirror on the wall, which metal is most precious of all?
Mining companies that manage to lower debt and reduce production costs are likely to see profitable growth in 2019. Potential risks include currency appreciation in metal-producing countries, declining gold grades, new mining regulations and fuel costs.
AngloGold, Gold Fields, Sibanye among sectors' top performers
Gold producers will remain focused in 2019 on lowering all-in sustaining costs (AISC) to support earnings, we believe, given that potential interest-rate gains worldwide may dent a recovery in metal prices. Gold Fields, AngloGold, Gold Fields, Sibanye AngloGold and Sibanye were leaders in our global senior gold peer group in 2019 trading through June 12. Others, including Polyus, Newcrest, Harmony, Barrick and Agnico Eagle had smaller gains. Exposure to the 14% plunge in silver prices during the period also hurt Yamana, Newmont Goldcorp and Kinross performances, in our view. Sibanye's Lonmin deal may boost its exposure to platinum-group metals, and we think its palladium division profit may benefit from strong market fundamentals plus higher metal price in 2019.
Determining which metal is most precious of all
Higher demand (particularly for autocatalysts), positive market sentiment and tighter supply are needed to support PGM prices in 2019, in our view. We also believe that gold could add a shine to PGM prices, with the metal offering investors a refuge amid global-growth uncertainty and geopolitical risk. Palladium was the top precious-metals performer since 1980 in dollar terms as of May 23, our study shows. Palladium outperformed silver the most -- by 585 percentage points-- in the period, followed by platinum, gold, palladium and rhodium. Palladium also significantly outperformed the dollar index by 543%.
Newmont Goldcorp, Barrick Gold, Norilsk Nickel, Amplats, Lonmin, Impala, Northam Platinum, Sibanye, Royal Bafokeng Platinum, Freeport-McMoRan, Vale and Glencore are among the leading global precious-metals miners.
Free cash flow may peak in 2019, enable M&A
Gold producers remain cautious on costs and are sustaining substantial capital expenditure to protect their balance sheets and reduce debt. Our analysis points to leading global gold miners delivering record aggregate free cash flow of about $8.6 billion in 2019. This would be an increase of 12% compared with the prior peak of $7.7 billion in 2016, and a recovery of almost $14 billion since the 2013 low. This cash hoard could enhance shareholder value, or enable future deal activity.
Lower capital spending, due to production start-ups or near-completions of some of the companies' mining projects, may result in additional gold volume and help support free cash flow growth. Goldcorp's absolute free cash flow increase will top peers in 2019, followed by Newmont Mining and Agnico Eagle Mines, based on consensus.
Capital spending to plunge 60% in 2019 vs. peak
This year's capital spending by the world's leading gold miners should continue to recover from 2016's recent trough, but at a slower year-over-year pace, our analysis shows. Memories of gold's price plunge vs. the 2011 peak are keeping producers cautious in respect to big investments, while a potential lack of strong price recovery could dent 2019 spending. This is despite savings from lower input costs, such as fuel. The gold price is down 32% (as of May 4) vs. the 2011 high.
Total capital expenditure is set to increase 7% in 2018 vs. the prior year's 27% rate, before declining 18% in 2019 to about $10.7 billion. That's a 60% plunge from the 2012 peak, based on analysts' estimates. Growth in capital spending in 2012-19 should be 39% at Sibanye-Stillwater, Agnico Eagle Mines (38%) and Fresnillo (10%).
Gold over $1,000 means cash margins stay positive
Gold-mining companies are subject to a fluctuating commodity price, and create shareholder value by boosting cash flow via earnings growth. Our analysis suggests that the world's top gold miners' cash margins will stay positive if the metal price trades above $1,000 an ounce in 2019. We calculate that the aggregate top gold miners' cash margin on a weighted-average basis may fall 67% below 2011's peak of $400. This is based on analysts' cash-cost estimates, and a scenario where gold is worth $1,000 an ounce in 2019.
Goldcorp could achieve the lowest average annual cash cost of $327 an ounce by fiscal 2019, followed by Newcrest ($583), Barrick Gold ($588) and Yamana Gold ($595), based on consensus estimates. The highest cash cost is expected to be incurred by Sibanye-Stillwater at $962, ahead of Yamana's $871.
Gold's 2019 output may fall to decade-low
The 20 top gold miners' global share fell to 39% in fiscal 2017, compared with 50% in 2010, as China boosted domestic output, based on our estimates and WBMS, Metals Focus and company data. Aggregate volume from these miners increased 0.4% in 2017 vs. a year earlier to 41.6 million ounces. That was 2% lower vs. 2011 when the gold price peaked. Aggregate output is set to decline in 2018, and then fall to its lowest level in 10 years in fiscal 2019, based on analysts' estimates.
Despite the recent gold-price rally, producers of the metal, such as Agnico Eagle Mines, may not be positioned to substantially expand output until 2020. The company's Lapa mine is in its final year of production and Meadowbank is scheduled for next year, before the Meliadine and Amaruq projects add volume.
Gold miners' revenue growth may slow in 2018-19
The rate of revenue expansion for the world's leading gold miners is likely to slow to single digits, yet performance may still improve on potentially higher gold prices and metals volume. We estimate that total sales in dollar terms will climb to $74.5 billion by 2019, but at an average rate of 5% in fiscal 2018-19 vs. 2017's 8% pace and annual 26% average growth in the period 2006-11, based on consensus. Aggregate revenue of the top gold producers peaked at about $77.4 billion in 2012 on strong gold prices.
Gold miners' 2019 sales should improve vs. a year earlier, with the exception of Barrick Gold, based on consensus estimates. Analysts are expecting double-digit sales growth next year for gold producers including Goldcorp, Gold Fields, Newcrest Mining, Harmony Gold and Sibanye-Stillwater.
Mirror, mirror on the wall, which metal is most precious of all?
Higher industrial demand (particularly for autocatalysts), positive market sentiment and tight supply should support rhodium, ruthenium and palladium prices in 2019, in our view. We also expect gold to continue offering investors a refuge amid global-growth uncertainties and geopolitical risks. Rhodium was the top precious-metals performer as of Dec. 5, outperforming other platinum-group metals in dollar terms since Jan. 2. Rhodium outperformed silver by almost 67.2 percentage points in the period, followed by platinum (66.9%), gold (57.7%), palladium (38.1%) and ruthenium (9.5%). Rhodium also outperformed the Bloomberg Dollar Index by 46.8%.
Companies Impacted: Norilsk Nickel is the No. 1 global top palladium producer, while Amplats is the world's top miner of platinum, ruthenium and rhodium.
