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Canadian miners will report another set of lousy results for the third quarter, but there may be some light among the wreckage as companies take drastic steps to slash costs to stay alive in a lower commodity-price world.
For more than a year, miners have been in turmoil, trying to operate amid the downturn in metal prices. The country’s three largest gold companies, Barrick Gold Corp., Kinross Gold Corp. and Goldcorp Inc., have recorded billions of dollars in writedowns. Other producers have stopped developing projects and cut jobs and dividends.
The bad news is not expected to stop when companies start reporting their quarterly results this week. Potash Corp. of Saskatchewan Inc. warned it will earn less because its customers are waiting for the price of the fertilizer to drop further before making their purchases. Other miners, including the world’s biggest gold producer, Barrick, could write down more assets as they try to mitigate the drop in metal prices and high cost of fuel, analysts say.
And if metal prices do not lift during the final quarter of the year, miners will be forced to write off some of their reserves because it will be too expensive to dig resources out of the ground.
But there is a glimmer of hope that the severe cost-cutting measures will soon begin to help companies’ bottom lines and that, in turn, will help boost their depressed shares.
“There has been a focus, like you would not believe, on cost cutting that will start to show through,” said John Gravelle, global and Canadian mining leader with PricewaterhouseCoopers LLC. “I think we will see some of the effects by the end of the year.”
The price of gold is trading at around $1,310 (U.S.) an ounce, down 30 per cent from the record high of more than $1,900 per ounce reached in August, 2011.
A number of factors, including uncertainty about the strength of China’s economy and the U.S. Federal Reserve’s decision to start winding down its economic stimulus program, will likely drive down the price of gold further as investors sell the precious metal in favour of a stronger U.S. dollar.
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