CIBCQ2/22 Precious Metal Producers Scorecard:
After The Dust Settles
Costs Pressures Continue; Glimpse Into 2023
Our Conclusion
As we look back on the quarter, we rank the relative quarterly performance,
analyze key changes to our outlook, and revisit some of the key themes that
drove share price performance. As we expected, the focus during the quarter
was on potential negative guidance or outlook commentary, specifically on
costs. Additionally, multiple companies in our coverage universe provided
commentaries on 2023 and highlighted the potential continuation of costs
pressures, which we have reflected, as well as the impact from growth capex
increases and delays at projects.
We have revised our NCM price target lower from A$27.00 to A$25.00, and
reiterate our Neutral Rating, incorporating our changes after the company
reported F2022 results and provided its F2023 guidance on August 18.
Key Points
Negative Costs Guidance Revisions As Inflationary Pressures
Continue: Overall, we continue to model costs at or above the higher end of
the guidance range provided for most companies in our coverage universe,
with an average increase of 7% vs. our prior estimates, except for AEM,
EDV, BTG, AUY and IAG where we are modeling lower costs for the year
given the strong H1/22 performance on costs. The second quarter saw
companies such as NEM, KGC, EQX, CG and NGD revise costs higher as a
result of costs pressures faced to date, as well as lower production ounces
expected for the year. While GOLD maintained its costs guidance, it expects
to come in at or above the top end of its cost guidance range as a result of
pressures faced to date. Given commentaries provided on earnings calls, we
added further cost escalation into our 2023 estimates.
Multiple Revisions Reflect Risk Associated With Narrower Margins:
Going into the quarter, we had intended to revise multiples to reflect the
downturn in gold price since April, as well as inflation, which impacted
margins and by extension trading multiples in the space. Unless there is a
significant rebound in the gold price or an abatement of cost pressures, we
do not believe that stocks will trade at their prior higher valuations.
Production Guidance Revised Lower Or To The Bottom End Of The
Range: Four companies revised production guidance lower on the back of
operational challenges faced at the assets (NEM), the suspension of
production at Oksut (CG), heavy rainfall flooding at Rainy River (NGD), and
disruption of operations at RDM, as well as slower-than-expected ramp up at
Santa Luz (EQX). Additionally, while KGC maintained its production
guidance, it noted that production was now expected at the bottom end of its
guidance. AEM, GOLD, EDV, BTG, AUY and IAG reiterated their production
guidance following positive H1/22 performance.
AEM Is Our Top Pick Post Quarter: Coming out of the quarter, we continue to rank AEM as
the top pick in our coverage universe given its good cost management in this inflationary
environment, low geopolitical risk, appealing organic growth and longer-term valuation
potential as we expect the stock to regain some of its premium valuations vs. its peers.