Gold shares remained in negative territory in early afternoon trading on Thursday, as the Market Vectors Gold Miners ETF (GDX) fell $0.26, or 0.6%, to $46.03 per share. The sector’s weakness came despite a rally in COMEX gold futures – which rose $16.90, or 1.0%, to $1,659.20 per ounce – and a fractional advance in the S&P 500 to 1,392.84.
One of the sector’s worst performers was Goldcorp (G.TSX, NYSE: GG), which announced disappointing first quarter earnings results. The Canadian-based gold producer reported adjusted earnings per share of $0.49 – below the $0.53 consensus estimate among Wall Street analysts. Following the report, Macquarie analyst lowered his Goldcorp price target to C$58.00 from C$59.00 but reiterated his Outperform rating. Shares of G.TSX tumbled 6.3% to C$38.44 this afternoon.
In his report, Lesiak wrote that “Over the past month, Goldcorp has underperformed its larger cap peers by 5% and bullion by 12%.The weak performance may be attributable to higher perceived political risk in Argentina (15% of NAV) and concern regarding the outcome of the El Morro (5% of NAV) legal dispute. However, the largest of the North American gold producers have all been under heavier relative selling pressure, possibly from less diversified generalist fund managers with a view that the rate cycle may be moving against gold.”
“Goldcorp is currently trading at a 5% premium to its peers on NAV, well below the more typical 20% to 50% premium valuation range,” Lesiak added. “Given the superior quality of Goldcorp’s assets, growth and cost profile, balance sheet and management, we believe the current lack of premium is unwarranted. We also believe concerns with respect to Argentina may be overstated.”
After the market close today, Agnico-Eagle Mines (AEM) is scheduled to announce its earnings results. J.P. Morgan analyst John Bridges – who has a Neutral rating and $0.37 per share first quarter EPS estimate on AEM – wrote in a note to clients yesterday that “Agnico Eagle recently released its new Meadowbank mine plan with reserves written down from about 3.5moz at the end of 2010 to 2.2moz, but with increased NAV due to lower costs and capital expenses and a higher throughput rate. However, the study suggests that work still needs to be done to reliably deliver on this plan. Though the company suffered setbacks recently and had to pull back its growth plans, we believe it has long lived assets at LaRonde and Kittila. An announcement on Goldex could give the stock a lift if, as we suspect, engineers feel the mine can be re-started.”
Other companies reporting in the days ahead include Newmont Mining (NEM) on Friday, Yamana Gold (AUY) next Monday, Barrick Gold (ABX) next Tuesday, and Kinross Gold (KGC) on May 8th.