Gold Miners Investing For Extended Bull Market
Scott Nystrom, Gold Stock Strategist, 08.25.09, 01:25 PM EDT
forbes.com
In a vote of confidence for gold, Barrick and others are investing billions to bring new supplies of gold to market.
Two notable industry trends were confirmed during the past month as gold producers announced their earnings reports for the second quarter of 2009.
The first trend is that gold miners' earnings were better than expected, on an adjusted basis. Over half of the gold producers beat consensus estimates by more than 10%. Companies that missed analysts' consensus estimates all missed them by less than 10%. On the surface, that is good news.
Below the surface, the good news on an adjusted basis was muddied by special items on the part of several miners, most notably Agnico-Eagle Mines ( AEM - news - people ), Goldcorp ( GG - news - people ), Kinross Gold ( KGC - news - people ) and Yamana Gold ( AUY - news - people ). As a case in point, Yamana had its second-quarter net income reduced by more than $60 million, due mainly to foreign-exchange derivative losses and revaluation of future tax expenses caused ironically by a weakening U.S. dollar. Imagine that, gold miners hurt by a weaker U.S. dollar. Management at all the companies will hopefully find ways to address these exchange-related financial losses going forward.
The second notable trend is that gold miners are working hard to control cash costs per ounce of gold produced. The table below shows that cash cost per ounce increased on average 2.0% in the second quarter compared to the first quarter. Even quarterly year-over-year cash cost per ounce at 18 percent can be viewed positively if outlier Agnico-Eagle is removed from the calculation. Excluding Agnico-Eagle, cash cost per ounce of gold produced year-over-year is a stellar -1.0%.
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