The Q1 2013 Newmont Mining conference call was about as somber as a funeral procession and company management offered little for investors to get excited about in the future. The senior gold producers have clearly turned their attention to aggressive cost cutting after years of mining cost inflation and terribly timed spendthrift acquisitions of lackluster underperforming projects. While Kinross may hold the title for worst major gold mining acquisition of the past decade with its $9.5 billion takeover of Red Back Mining, Newmont isn't far down the list with its disastrous $2 billion+ Hope Bay project in the Canadian Arctic.
On today's conference call Newmont management painted a dim picture - first by starting the call applauding their safety record and then proceeding with comments like "We don't have as much potential for near term discoveries" and a consistent focus on cost cutting and reduction of the exploration budget.
Last week Barrick Gold (ABX) also stressed cost cutting discipline and even proposed the possibility of suspending construction of its massive Pascua-Lama copper/gold project in Chile:
"we began cost cutting before gold’s recent volatility and we will continue with our efforts, independent of metal price movements going forward. And while we have made good progress we still have work to do." - Jamie Sokalsky, CEO Barrick Gold
"our single largest opportunity for capital savings is Pascua-Lama. Given the suspension of construction activity in Chile, as Jamie said earlier, we are taking a hard look at all of our options, including materially reducing the rate of spend or even suspending construction activity for the entire project." - Ammar Al-Joundi CFO Barrick Gold
The mining industry has a long history of being reactive rather than proactive - this time appears to be no different. The senior producers are in a state of shell shock after years of wasting billions upon billions of dollars during the greatest bull run in gold market history. Now with the golden goose (the gold price) haphazardly flailing about, the natural reaction is for mining executives to overreact to the downside with panicked cost cutting and scrapping of new exploration projects.
While this reactive behavior certainly speaks to the morbid sentiment across the mining/resource space, anyone could easily deduce the same from just looking at the ABX, KGC, NEM charts. The aggressive cap-ex cuts across the industry are likely to weigh heavily on the publicly traded "arms suppliers" to the mining industry such as CAT and JOY. CAT is well known for its $8.8 billion acquisition of Bucyrus less than two months before the gold price peak in August 2011.
The 2nd half of 2013 should be rough sledding for these two companies (CAT JOY) as the China slowdown continues to accelerate, the eurozone falls deeper into recession, and the US tries to get its fiscal house in order. While both stocks aren't far from 52-week lows they may still have further to fall before the current cycle bottoms:
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CAT Daily
JOY Daily
