More Trouble Ahead for Gold Mining Stocks

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Quarterly results for gold mining companies are about to start coming in, and only a pollyanna would be looking for good news after the year these companies have just gone through. Earnings per share (EPS) look to be half what they were in the year-ago quarter, and annual results are forecast to be only somewhat better.

The really bad news though will be the re-valuation of the mining companies gold reserves based on the collapse in prices for the yellow metal itself. Gold now trades at around $1,250 an ounce, compared with a price nearly $400 an ounce higher than it was a year ago. When the miners calculated the value of their reserves at the end of 2012, only one even came close to the metal’s price at the end of the year. Big asset write-downs are in store for most miners.

The CEO of Barrick Gold Corp. (NYSE: ABX) said last week that Barrick will value its gold reserves at $1,100 an ounce. In its 2012 annual report, the company valued its gold reserves at $1,700 an ounce. Barrick’s valuation is cautious, considering that analysts expect miners to calculate the value of gold reserves for 2014 at $1,200 an ounce.

In addition to its valuation drop, Barrick has another big problem. The company has temporarily halted development of its Pascua-Lama project after injecting more than $5 billion in the South American mine. The company says it will take an impairment charge for that in 2013, and coupled with the certain write-down on its gold reserves, the company’s results, due February 13, are not going to be pretty. Analysts expect fourth-quarter EPS of $0.42 on revenues of $2.91 billion, compared with EPS of $1.11 and revenues of $4.19 billion a year ago. Shares closed down 1.54% at $19.22 Thursday, in a 52-week range of $13.43 to $33.36, and they are down about 41% for the past year. The consensus price target on the stock is around $19.20.

Newmont Mining Corp. (NYSE: NEM) reported fourth-quarter and full-year 2013 operating results after markets closed on Thursday. The company produced 5.1 million ounces of gold last year at an average realized price per ounce of $1,267. In 2013, Newmont calculated the value of its gold reserves at $1,400 an ounce, and the company said on Thursday it will use $1,300 to calculate the value of its reserves this year. The company expects all-in sustaining cash costs of $1,075 to $1,175 per ounce of gold. Newmont stock closed at $24.10 on Thursday, down about 44% in the past 12 months, and in a range of $22.34 to $45.82. The consensus target price on the stock is around $27.70.

Goldcorp Inc. (NYSE: GG) stock is down nearly 33% in the past year and closed down 2.39% on Thursday at $24.14, in a 52-week range of $22.34 to $45.82. Goldcorp valued its gold reserves at $1,350 an ounce at the end of 2012, and a downward re-valuation here may not be too big a shock. The consensus analyst price target is around $27.20. The company is also set to release results on February 13, and analysts expect quarterly EPS of $0.24 on revenues of $1.14 billion, compared with EPS of $0.57 and revenues of $1.44 billion in the same period a year ago.

Yamana Gold Inc. (NYSE: AUY) is scheduled to report fourth-quarter and full-year 2013 results on February 18. Analysts are looking for quarterly EPS of $0.10 on revenues of $510.63 million, compared with EPS of $0.26 and revenues of $629.5 million in the year-ago quarter. At the end of 2012, the company valued its reserves in a range of $825 to $1,400 an ounce, depending on the project. Shares closed down 0.62% Thursday, at $9.58 in a 52-week range of $8.31 to $17.00. The consensus price target on the stock is around $11.30.

The gold miners are trying to keep shareholders happy by cutting costs and returning capital through dividends and buybacks. Goldcorp, for example, has estimated its all-in sustaining costs for 2014 at $975 an ounce, some $90 below its 2013 costs. In 2013, Barrick’s all-in sustaining costs came in between $900 and $975 an ounce.

There is not an awful lot of headroom between those costs and an $1,100 an ounce price for gold. Miners look to be in for another tough year.