Investors zero in on costs again as gold miners set to report Q3 results – by Peter Koven (National Post – October 27, 2015)

The National Post is Canada’s second largest national paper.

As the senior gold miners begin to report third-quarter results this week, they find themselves stuck in a frustrating uphill battle.

Gold prices have moved steadily lower in the past three years, forcing miners to make deep cuts to operating costs and capital spending. Those moves were necessary to preserve liquidity, especially given that some companies (notably Barrick Gold Corp.) have too much debt. The cuts should pay off when the market turns.

Unfortunately, that day hasn’t arrived, and, notwithstanding a gold price rally in October, it has become increasingly tough for companies to generate free cash flow and investor interest. The senior producers have done a good job of meeting or beating their production and cost guidance over the past couple of years, but it hasn’t done much of note for their stock prices.

In a low price environment, it is no surprise that investors are zeroed in on cost reductions. Costs have been the main focus of every recent earnings season, and this one should be no different.

“Aside from a higher gold price, (cost reductions) are the only item that will lead to investor interest in the sector,” said Dennis da Silva, a portfolio manager at Middlefield Capital.

TD Securities analysts calculated that average all-in sustaining costs in the industry have dropped to about US$971 an ounce, down more than 20 per cent from a peak of US$1,217 in 2012.

Unfortunately, gold prices have declined at a much faster pace. They fell almost six per cent in the third quarter, averaging US$1,125 an ounce.

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