Much is made of the almost decade-long period when gold miners lagged bullion. The main reason is that
until the last couple quarters, the miners were not generating free cash flow due to higher costs, stretched
balance sheets and falling mine grades. For a time they were poor investments. Except for declining
grades, the other factors no longer weigh on the group and to no surprise, gold shares have outperformed
the markets. Recent first quarter results show most with free cash flow and widening margins. As
investors rediscover their appetite for gold, we believe gold stocks’ bull run has only begun.
Still the industry faces a dilemma of declining reserves. Few replaced reserves last year forcing some to
buy ounces on Bay Street through M&A activity because those ounces remain cheap. Newmont’s
acquisition of Goldcorp and Kirkland Lake’s takeover of Detour are examples of the ongoing
consolidation of the industry and the quest for reserves. Competition too will come from the big stateowned Chinese producers, who faced with declining reserves will gobble up the weaker producers as
Shandong bought out TMAC. With fewer gold companies, we believe the Street is ready to back a new
crop of players so we expect a spate of “bulking up” acquisitions by the mid-tiers who will feast on the
“non-core” assets of the seniors. Teranga’s acquisition of the Massawa Gold project from Barrick is a
good example. The developers, like McEwen Mining and Osisko are the next sweet spot. Finally we
believe that the cash rich producers will finally boost exploration, a core function but there will be much
more interest in “brownfield” projects that have been neglected and starved for cash.

We continue to like the majors like Barrick Gold, Agnico-Eagle and mid-tier players B2Gold and
Lundin Gold for high grade Fruta del Norte in Ecuador and a takeout by Newcrest.
Agnico-Eagle Mines Ltd.
Agnico reported a strong quarter despite Covid-19 shuttering its mines in Mexico and Nunavut. Taking
advantage, Agnico paid down debt and refinanced notes strengthening an already stellar balance sheet.
Agnico has a strong balance sheet and the Nunavut fourth quarter teething disappointment has proven to
be fixable and temporary. Agnico has almost 22 million ounces of reserves. Agnico is favoured for its
rising reserve growth potential, management capability and operations in politically safe jurisdictions.
Agnico’s LaRonde, Goldex and Malartic (50% owned) mines based in Quebec contribute 40 percent of production. Buy.
Barrick Gold Corp.
Barrick had a strong quarter earning US$400 million allowing the miner to further improve its balance
sheet. Barrick generated $438 million of free cash flow on 1.25 million ounces of production from its
high quality mines. After creating the Nevada merger with Newmont, Barrick has six Tier I mines but is
stymied by the lack of other Tier I assets. As such they are still eyeing copper assets to boost Lumwana’s
contribution. After settling with the Tanzanian government last year, Barrick is teeing off with the Papua
New Guinea government who in a shakedown, said they would not renew Barrick and China’s Zijin joint
venture license. The Porgera mine was put on “care and maintenance”. Like Tanzania, we expect this to
be resolved because no government wishes to kill the golden goose. Barrick has about 71 million ounces
of reserves and an excellent pipeline of projects with expansions at Cortez and Veladero. Buy.
B2Gold Corp
B2Gold had a strong quarter generating $70 million of free cash flow. B2Gold doubled their dividend and
with cash of $208 million against debt of $220 million, the mine is virtually debt free. B2Gold is
expanding flagship Fekola and the expansion will be completed in the third quarter for a nine year life
averaging 500,000 ounces a year. We like B2Gold for the rising production profile, management
expertise and reserves of almost 7 million ounces. B2Gold is a low cost producer after selling higher cost
Limon and Libertad in Nicaragua last year. Buy
Centerra Gold Inc.
Centerra has three operating mines in Mount Milligan, Kumtor and now Öksüt in Turkey. Centerra
generated free cash flow but production was lower than projected due to Mount Milligan’s copper/gold
operation in British Columbia, which halved reserves by 49 percent last year. Soon to be commissioned
Öksüt in Turkey contributed in the quarter. Centerra will release a new life of mine plan for Kumtor in
Kyrgyzstan this year after a 43-101, which should boost reserves and mine life. We prefer B2Gold here.
Eldorado Gold Corp.
Mid-tier Eldorado produced about 116,000 ounces and generated $23 million of free cash flow.
Eldorado’s Lamaque mine in Quebec was shut down due to Covid-19 but operations were restarted midApril. Eldorado drew down $150 million on a revolver and tapped their $125 million ATM giving them
some balance sheet flexibility. Eldorado has key operations in Turkey with Kisladag and Efemcukuru and
Greece, but the Greek government permit stalemate has kept Eldorado in the doghouse. We prefer B2Gold here.
It is tough to lose money in the gold mining business today but IAMGOLD managed that feat due to
higher costs and lower production. Essakane in West Africa was a disappointment due to lower grades.
Rosebel in Suriname had a better quarter. IAMGOLD does have a strong balance sheet with liquidity of
almost $800 million against debt of $419 million together with an ill-advised forward gold sale of $170
million for stillborn Côté Lake. IAMGOLD has too many high cost assets and operating execution has been disappointing.
Kirkland Lake Gold Ltd.
Kirkland posted a strong quarter with the help of newly acquired Detour Gold in Ontario. Total revenues
jumped 80 percent on 330,000 ounces produced in the quarter. Kirkland’s all-in sustaining cost was
higher at $776 because of Detour’s lower grade output. Kirkland generated almost $145 million in free
cash flow and has about half a billion in cash. High grade Fosterville in Australia had a good quarter
while Detour generated positive cash flow. Detour was bought to add to Kirkland’s short reserve life and
the acquisition for shares significantly extends Kirkland’s life.
Kinross Gold Corporation
Kinross doubled earnings producing 560,000 gold equivalent ounces. The drop in output was due to
Russian Kupol and flagship Paracatu in Brazil. Tasiast in Mauritania had a good quarter but the union
walked off the job and the miner is still negotiating with the Mauritian government. While Kinross has a
strong balance sheet with $1.1 billion of liquidity, its maturing assets and, notwithstanding decades long
operations, the miner still has an unhealthy geographic exposure to Russia and Mauritania. La Coipa was
approved but the capex is too high. We prefer B2Gold here.
Newmont Mines Ltd.
Newmont had a strong quarter with production of 1.5 million ounces, up 20 percent. Reserves stand at
100 million ounces. While free cash flow was $600 million, all-in-costs (AIC) increased to $1,000 due to
the higher cost of Goldcorp’s mines. Yanacocha had a strong quarter but it appears that Eleonore,
Musselwhite and Cerro Negro are works in progress. The company is still restructuring its portfolio of 12
miners and has high hopes of turning around Penasquito’s polymetallic mine in Mexico, which
management believes is a Boddington look-alike. Newmont has a strong balance sheet with net cash of
$3.7 billion and long term debt at $6 billion. During the quarter, Newmont bought back $300 million of
share repurchases as part of a $1 billon buyback to offset the Goldcorp purchase. We prefer Barrick here.
John R. Ing