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Will Mixed Earnings Take Shine off Gold Mining ETFs?

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The gold mining space this year is on a tear. Higher safe-haven demand for the yellow metal helped the space to hang on to strong gains so far this year. This makes it more important to look at how key companies in this field fared last quarter.

Two gold mining companies Barrick Gold Corporation () and Goldcorp Inc. reported on July 27. While ABX came up with mixed results, Goldcorp dampened investors’ moodby missing on both lines.However, Newmont Mining Corp (NEM - Free Report) , which reported on July 20, was the star as it outpaced on both counts. Let’s dig a little deeper (read: Can Gold Mining ETFs Keep Shining in 2H?).

Barrick Gold’s Q2 Earnings in Focus

Barrick Gold’s Q2 adjusted earnings per share of $0.14 matched the Zacks Consensus Estimate. Earnings, however, grew from the year-ago quarter figure of $0.05 per share.

Revenues fell around 9.8% year over year to $2.012 billion in the reported quarter and missed the Zacks Consensus Estimate of $2.036 billion. Average realized price of gold grew about 5.8% year over year to $1,259 per ounce in the quarter while all-in sustaining costs tumbled 12.6% to $782 per ounce.

For 2016,the all-in sustaining cost guidance was cut to $750–$790 per ounce from $760–$810 per ounce at the end of the first quarter. The new guidance is below the initial 2016 guidance of $775–$825 per ounce.

Investors played down this positive in the outlook and put more attention to the sales miss punishing the stock price by about just 0.4%.

Goldcorp’s Q2 Earnings in Focus

The company’s Q2 loss per share was $0.01 (adjusted for restructuring costs and negative deferred tax effects offoreign exchange on tax assets and liabilities and losses) against the Zacks Consensus Estimate of $0.04 earnings per share. Its revenues of $753 million (down 36.6% year over year) also missed the Zacks Consensus Estimate of $898 million.

Lower output weighed on the bottom line and was partly compensated by an uptick in the realized gold price.Gold output of 613,400 ounces in Q2 was 32.4% lower year over year and below the 680,200 average of 10 estimates, as per Bloomberg.

Not only this, the company’s average all-in sustaining costs came in at $1,067 an ounce of gold in Q2 compared with the $1,001 average of four estimates compiled by Bloomberg and $853 recorded in the year-ago period. The stock fell about 5.9% following downbeat earnings.

Newmont’s Q2 Earnings in Focus

Another gold mining giant, Newmont Mining reported second-quarter 2016 adjusted earnings of $0.44 per share, representing a 69.2% surge from $0.26 earned in the year-ago quarter. Earnings also surpassed the Zacks Consensus Estimate of $0.28 per share.

Newmont's revenues of $2.038 billion went up 6.8% from $1.908 billion in the year-ago quarter as higher gold volumes and pricing more than offset lower copper volumes and pricing. Revenues also topped the Zacks Consensus Estimate of $1.863 billion.

In Q2, average net realized gold price was $1,260 per ounce, reflecting a year-over-year increase of 6.9%. The average net realized copper price was $1.94 per pound, representing a year-over-year decline of 19.5%.

All-in sustaining costs of $876 per ounce for gold were down roughly 3.6%. Newmont anticipates attributable gold production to increase from a range of 4.7−5.0 million ounces in 2016 to 4.9−5.4 million ounces in 2017, and remain stable thereafter in the range of 4.5−5 million ounces through 2020.

ETF Impact
 
The aforementioned companies have considerable exposure in large-cap funds like Market Vectors Gold Miners ETF (GDX - Free Report) , iShares MSCI Global Gold Miners ((RING - Free Report) ), PowerShares Global Gold & Precious Metals () and Sprott Gold Miners Exchange Traded Fund (SGDM - Free Report) (see all precious metal ETFs here).
 
In PSAU, NEM (7.98%), ABX (7.79%) and GG (6.83%) take the top three positions. More than 36% of RING goes to ABX (14.74%), while NEM and GG take 13.07% and 8.85%, respectively.

In GDX also, ABX, NEM and GG take the top three spots with a respective share of 10.37%, 9.47% and 6.17%. SGDM puts about 11.87% and 4.11% in GG and ABX, respectively.

Bottom Line

With mixed-to-downbeat earnings, now it remains to be seen if the gold mining companies and the related ETFs can continue to tack on solid gains. The Fed was dovish in its July meet too but kept the doors open for a September hike given that the economy has started taking root. Then again, a lower inflationary outlook and a still fragile global macroeconomic backdrop make a September hike dicey (read: A Positive-But-Cautious Fed Meet: Buy These ETFs).

Overall, though some glitches have started to appear lately in the gold mining space, the growth story is not finished yet in our opinion. Gold mining as a sector is quite strong now with the Zacks Industry Rank in top 3% at the time of writing. Investors can easily mitigate the weakness in GG by the strength in other mining stocks like NEM and ABX by investing in the afore-mentioned mining ETFs.

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