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Gold Miners Saw Profits Rise in 2Q as Operations Ramped Up, Gold Prices Rose — Talking Markets

By Adriano Marchese

 

As pandemic-related measures have begun to ease in much of the world, gold miners have seen profits rise amid ramping-up production and increased precious-metals prices, but analysts are torn on the longevity and forces behind the trends.

Gold mining giant Newmont Corp. said attributable gold production rose 15% in the second quarter to 1.45 million ounces, contributing to a nearly doubled profit in the period.

The increase was primarily due to higher production from sites that were previously placed into care-and-maintenance mode or had experienced reduced operations in response to Covid-19 during 2020.

Similarly, Freeport-McMoRan Inc. reported greater profit and earnings in the second quarter as production and realized prices rose for the metals the company produces. The Phoenix-based mining company said gold sales climbed to $305 million, from $184 million in 2020's second quarter.

Much of the success of the miners can be credited to higher gold prices.

"Gold had a volatile second quarter, with a ride up from the mid-$1,700 an ounce-level peaking at the $1,900 an ounce level in early June and then retracing back to the $1,770 an ounce level by the end of the quarter," according to a report by Canadian bank CIBC.

Newmont said its average realized price for gold in the period was $1,823 an ounce, an increase of $99 per ounce over the prior year quarter, which helped drive up profit in the quarter.

Freeport-McMoRan saw similar increases, with average realized prices at $1,794 an ounce, up from $1,749 in the second quarter of 2020.

For the full-year 2021, Newmont forecasts attributable gold production to reach 6.5 million ounces. This is expected to grow further in 2022, between 6.2 million and 6.7 million ounces, and in the same range in 2023.

Further down the line, production is expected to increase to somewhere between 6.5 million and 7 million ounces in both 2024 and 2025.

Freeport-McMoRan also reaffirmed its guidance at 1.3 million ounces of gold in 2021, which is expected to rise to 1.6 million in 2022 and again to 1.8 million a year later.

The forecasted increased production could be met with higher demand for gold as more and more investors translate their inflation worries into gold purchase.

CIBC said its outlook for gold remains bullish into the second half and over the next two years as the pandemic continues to intensify in many countries, vaccination rollouts miss expectations, and governments struggle to keep up with demand for more fiscal stimulus.

However, Canadian bank Scotiabank believes the inflation fears are only temporary.

"We believe that fears related to higher interest rates, a stronger U.S. dollar, and a slowdown in China are transitory," Scotiabank said in a research note, suggesting that base and precious metals are in for a supercycle--a sustained period of expansion.

CIBC remains skeptical, suggesting that inflation concerns have risen to the forefront with the market apparently not believing the 'transitory' argument.

"The Fed is reiterating that it is not expecting to have to hike rates well into 2022. In any event, history has shown that the Fed is aware that it cannot significantly outpace its counterparts and still remain competitive on the trade front," CIBC said.

 

Write to Adriano Marchese at adriano.marchese@wsj.com

 

(END) Dow Jones Newswires

July 22, 2021 12:23 ET (16:23 GMT)

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