Gold 2Q 2014: Review of Earnings Results and Costs
Gold Miner Earnings, Expectations, and Revision
JOE FOSTER: Ima, we're nearly through the fourth quarter earnings season for gold companies. Have these gold companies met our expectations?
IMA CASANOVA: Most of the companies we track have now reported their fourth quarter results. As for their earnings results, a little less than half of the companies have missed expectations while the other half have either met or exceeded expectations. On the positive side, a lot of the misses have been driven by non-operating items such as general and administrative expenses, sales that were lower than production, interest, tax, etc. Operating results were actually broadly in line with expectations. As a result, the market focused more on cost performance and operating results, and did not necessarily punish companies that missed earnings expectations.
FOSTER: So the market has been able to look past some of the extraordinary items to see through to the bottom line of what's really been happening with these companies?
CASANOVA: Exactly. Along with financial results, gold companies also put out reserve revisions and change of mine plans, and some had to reduce their dividends – all the things that mining companies do at the end of the year. The market reaction was not what you would expect for these types of write-downs and impairments. Instead the market has taken this as a reaction to a lower gold price environment and these companies are doing what they need to do to survive in this environment. At the same time, these companies are doing what investors want: be more disciplined with costs and increase rates of return. Gold equities as a sector has done really well so far this year.
FOSTER: The gold industry has been through a horrendous period of rising costs over the last number of years, and we saw that moderate somewhat in 2013. Do you see any trend developing? What are we looking for as we move into 2014?
CASANOVA: In 2013 we saw a declining trend for costs. We monitor cost throughout the quarters, and third quarter costs were better than the second; the fourth quarter results that we just reviewed were slightly better than Q3 costs. For 2014, the companies have provided guidance. In general, they're not necessarily expecting a decline in costs for the year but are expecting it to be relatively flat. However, we wouldn't be surprised to see costs continue to come down, considering that many of the cost cutting initiatives that the company implemented last year are still being implemented and deployed this year. In addition, we're seeing weaker foreign currencies, which could translate into lower U.S. dollar costs for many of the operations in the sector.
FOSTER: It certainly seems that the market is looking through a lot of the messiness that we saw with the quarterly reporting, and I think the share price performance indicates that the market is taking a much more positive view on these gold stocks this year.
CASANOVA: Yes. Let's hope it continues that way.
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