Gold earnings season as noisy as expected so far – by Peter Koven (National Post – July 26, 2013)

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The second quarter gold earnings were expected to be noisy, and they have not disappointed so far. Writedowns, plummeting profits and a vast range of realized prices have been key themes in the reports. Most importantly, the miners are unveiling the cost and capital spending reductions they merely hinted at for most of the year. They are a crucial step to preserve balance sheet strength amid a bear market for gold.

On Thursday, Goldcorp Inc. announced it is slashing spending by US$200-million in 2013, and reiterated mine closures are a possibility if gold sinks below US$1,200 an ounce for an extended period. It also cut exploration and general and administrative expenses. Rival Agnico Eagle Mines Ltd. plans to cut more than US$200-million from next year’s budget.

The moves come just as credit rating agency Moody’s warned the gold producers “must take action” to protect their ratings and minimize earnings deterioration. Miners in virtually every commodity are trying to slash costs and spending right now, but there is a greater urgency in gold because of the rapid decline in price.

“They’re starting to show the first signs of capital discipline,” said Greg Taylor, a portfolio manager at Aurion Capital. While they have announced some aggressive measures to preserve cash, Veritas analyst Pawel Rajszel said that details have been limited so far, and that companies are largely pushing spending into the future rather than cutting it.

“I think all the gold companies are talking more than walking,” he said. “It would be easier to have confidence in the cost cuts if they laid out a more detailed plan of where they will be coming from.”

The second quarter results provided evidence of why many companies need to cut, as they reported sharp declines in profit. But because the price of gold was so volatile throughout the quarter, the magnitude of the drop depended largely on timing.

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