Spot gold prices opened above $1,100/oz in London this morning, and have pretty much stayed there. Breaking through that barrier has given a boost to the major gold mining shares as well.
Yamana Gold (AUY) came within a whisker of its 52-week high of $12.76 early this morning, with Barrick Gold (ABX) and Newmont Mining (NEM) doing the same. Kinross Gold (KGC) and AngloGold Ashanti (AU) are also up. SPDR Gold Shares ETF (GLD) touched a new 52-week high as did the Market Vectors Gold Miners ETF (GDX). It’s been a good day for the gold miners.
Yamana, which reported third quarter earnings last week, missed consensus non-GAAP EPS estimates of $0.14 on revenues of $333 million and net income of $61 million.
That’s not Yamana’s biggest problem. For the quarter, the company’s cash flow from operations totaled $144.939 million. Capital expenditures totaled $144.654 million. Thus, free cash flow totaled just $285,000. For the first nine months of 2009, Yamana’s free cash flow is negative, -$43 million.
Newmont’s free cash flow for the first nine months of 2009 is $635 million on revenues of nearly $5.2 billion. That’s the best performance among the big mining companies, but it represents a margin of just over 12%. By contrast, Exxon Mobil (XOM) reported free cash flow in the third quarter of $2.3 billion on operating cash flow of $8.8 billion less $6.5 billion in capital expenditures, more than double Newmont’s margin.
Containing costs is the main concern of virtually all mining companies. It’s about all they can do to raise their margins in a commodity market. Yamana’s reported cash costs for the third quarter were $349/gold equivalent ounce. That’s about $100/oz less then Barrick or Newmont or AngloGold.
As long as the weak dollar threatens to increase inflation, gold will maintain its traditional role as an attractive alternative asset to stocks, and a hedge against inflation. And as long as that statement holds, gold miners that can hold down costs stand to make some real money.
Still, free cash flow among the miners is something worth watching. It’s really low, and while higher prices for gold will certainly help, maybe the miners’ management could be doing a little more.
