January is nearing an end, and that means one thing: Gold miners will start announcing earnings. New Gold (NGD) will get things started on Feb 6, followed by Kinross Gold (KGC) on Feb. 12 and Goldcorp (GG) and Barrick Gold (ABX) on Feb. 13.
Reuters The big question as earnings approach: Can miners cut costs fast enough to satisfy investors? JPMorgan’s John Bridges isn’t so sure. He writes:
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A feature of the upcoming results will be the extent to which cost cuts have protected margins and thus reserves, even as gold prices fall. Cuts to operating and capital costs have become essential as new shareholder funds become expensive. An indirect benefit of these initiatives could be to limit cuts to reported reserves. It will also be interesting to see how investors react to reserve cuts. Reserves and resources were an engine of growth for gold equities in recent years but now, with near-term profitability the key, we expect projections for near-term free cashflow to be more market moving than changes to reserves…
Miners are working hard to cut costs and defer sustaining capex and consequently we estimate average [all-in sustaining cost] to fall by about $100/oz in 2014 for companies in our coverage. [Goldcorp] introduced its 2014 AISC guidance recently at $975 (midpoint), which is $90/oz lower compared to 2013. While some of the savings are sustainable, miners can't perpetually defer buying of new trucks and equipment. [Kinross Gold] announced a steep ~40% reduction in capex for this year, however, suggested that reinvestment would be required at some point…
In our view, market reaction to the upcoming results is likely to be tempered by the current performance of gold, which has been encouraging.
Shares of New Gold have gained 1.8% to $5.82 at 1:05 p.m., while Kinross has risen 0.7% to $4.52, Barrick has advanced 0.5% to $18.62, and Goldcorp has jumped 1.5% to $23.63. The Market Vectors Gold Miners ETF (GDX) is up 1.1% to $23.14 today.
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