Second-Quarter Results Show Impact of Gold Price Plunge

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Earnings season continued in the gold patch this week, giving investors and analysts a closer look at the effects of a falling gold price on miners in the second quarter.

With gold down more than 20% so far this year, analysts at Stifel Nicolaus recently estimated that the gold miners they cover would report an average 20% drop in EBITDA in Q2, compared with the previous quarter, according to the Financial Post .

Indeed, last week, Goldcorp ( GG ) president and CEO Chuck Jeannes noted that the company's revenues and operating cash flows were significantly impacted by lower realized gold prices in the second quarter.

Goldcorp reported a net loss of $1.93 billion, or $2.38 per share, in Q2 resulting from a non-cash impairment charge related to exploration potential at its Peñasquito mine in Mexico. This compares to net earnings of $268 million, or $.33 per share in the second quarter of 2012. Goldcorp's average realized gold price in Q2 2013 was $1,358 per ounce, down from $1,596 in the same quarter of 2012.

"Almost half of our total quarterly gold and silver sales occurred in the month of June, which coincided with a period of particularly weak prices for the metals," said Jeannes, in a statement.

Also last week, Newmont Mining ( NEM ) reported a non-cash impairment charge in its Q2 results -- primarily related to the impact of lower gold and copper prices on long-term assets at its Boddington and Tanami mines in Australia -- which resulted in a $2 billion net loss, or $4.06 per share, in the quarter.

Looking ahead, many miners point to further spending reductions in the near to medium term. Goldcorp, for example, says it is reviewing its short-term operating plans with a focus on cost containment as well as "on improving operating cash flow through optimal mine planning in a lower cost price environment."

Similarly, Kinross Gold ( KGC ) said on Wednesday that it has "intensified" its focus on margins, cost reduction, and cash flow as a result of the gold price drop. Kinross recorded a net loss of $2.5 billion, or $2.17 per share, in Q2, which it also says is "largely as a result of lower short-term and long-term gold price assumptions." The company says it does not expect to make a decision on whether to proceed with a Tasiast mill expansion until 2015 at the earliest.

On Thursday, it was Barrick Gold's ( ABX ) turn, as the miner reported a second-quarter net loss of $8.56 billion, or $8.55 per share, reflecting $8.7 billion in after-tax impairment charges, which it says were "largely driven by significant decreases in long-term metal price assumptions" following the sharp declines in spot prices in the second quarter.

Barrick has also said it expects to reduce capital spending at its Pascua-Lama project by $1.5 billion to $1.8 billion in 2013-2014 and announced Thursday that it is cutting its quarterly dividend to $.05 per share. On Wednesday, Kinross also suspended its semi-annual dividend.

Newmont, which uses a gold price-linked dividend policy, also cut its dividend to $.25 per share in July, based on the average London P.M. Fix of $1,415 per ounce for the second quarter of 2013. In April, the company's quarterly dividend was $.35 per share based on the first quarter average gold price of $1,632 per ounce.

Barrick ended Thursday's trading session down 0.9%, while Kinross fell 2%.

Twitter: @helenbnichols




The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Commodities

Referenced Stocks: ABX , GG , KGC , NEM

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