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One year ago, the gold mining sector reported its most appalling quarterly earnings ever. A steep decline in the price of gold caught the industry off-guard in the spring of 2013, prompting some miners to report record writedowns and net losses in the second quarter. Barrick Gold Corp. led the way with an absurd quarterly loss of US$8.56-billion, the second biggest in Canadian history.
The senior gold miners are now set to report their latest Q2 results over the next two days. But thanks in part to the measures they took a year ago, their earnings should be a lot less noisy and a lot less troubled.
“I’m not looking for any big dislocations in this quarter,” Mackie Research Capital Barry Allan said. “Not a lot of ‘Oh my God, where did that come from?’”
When gold plunged 26% in April and May of 2013, the whole industry shifted focus. Instead of chasing production growth (as they had for many years while prices were rising), miners turned their attention to cost reductions and capital spending cuts.
At the time, the cost reduction announcements were overshadowed by some of the more ridiculous writedowns. But those moves are bearing fruit today.
The senior gold miners reported significant year-over-year reductions in all-in sustaining costs in the first quarter of 2014. Barrick’s costs were down by US$100 an ounce, while Goldcorp Inc.’s were down by US$294 (though the comparable quarter was an unusually bad one for Goldcorp).
Investors and analysts are hoping for more of the same in Q2. Gold prices have been relatively flat this year, so any margin growth is going to have to come from the cost side.
But experts said the progress might be more muted in Q2 after significant cost reductions were achieved in the previous six months. That said, after last year’s disruptions, a steady-as-she-goes quarter is perfectly acceptable to many investors.
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