Gold Miners’ Outlook Fades on Higher Costs, Lower Prices

Gold miner Barrick Gold Corp. (NYSE: ABX) introduces a new CEO tomorrow at its quarterly earnings show. The consensus estimate from Thomson Reuters calls for EPS of $0.95 on revenue of $3.5 billion, compared with results for the same period a year ago of $1.12 for EPS and $3.43 billion in revenues. CEO Jamie Sokalsky would probably be happy if the story he gets to tell is that good.

Gold miners have been hit hard by falling prices for the yellow metal and by higher mining costs. There’s not a lot the miners can do about the commodity price of gold, but most analysts expect them to be able to control costs. That’s not as easy as it may sound, primarily because the gold content of the ore the companies mine typically falls as the mines age. These lower grade ores mean the companies have to dig up more ore, which raises their other costs as well. Those costs are helped a little by lower fuel costs and a strong dollar, but not enough to counter the ore quality and higher wages.

Goldcorp Inc. (NYSE: GG) warned on production and costs two weeks ago, and EPS estimates for the company fell from $0.53 to $0.44. The current estimate calls for EPS of $0.42 on revenue of $1.37 billion. The company is also scheduled to report earnings tomorrow.

Newmont Mining Corp. (NYSE: NEM) has seen its EPS estimates fall from $1.08 to $0.93 in the last 3 months. Revenue is expected to reach $2.52 billion. Newmont reports earnings tomorrow.

AngloGold Ashanti Ltd. (NYSE: AU) has actually seen its EPS estimate rise in the last 90 days, from $1.07 to $1.16. The company announced earlier this week that gold production would increase by 9% in the second quarter at a total cash cost of $800-$805/ounce, far below previously expected cash costs of $840-$845/ounce. The company reports earnings on August 6th.

Yamana Gold Inc. (NYSE: AUY) is expected to post second-quarter EPS of $0.21 on revenue of $552.9 million. The EPS estimate has fallen from $0.29 in the past 90 days. Yamana is scheduled to report earnings on August 8th.

Gold prices are rising today, with futures above $1,600/ounce for the first time in two weeks. More than anything, the gold miners need prices to get back to at least $1,650/ounce — and higher would be better.

The Market Vectors Gold Miners ETF (NYSEMKT: GDX) is up 1.8% at $41.46 in a 52-week range of $39.08-$66.98.

The SPDR Gold Shares Trust (NYSEMKT: GLD) is up 1.14% at $155.27 in a 52-week range of $148.27-$185.85.

Paul Ausick