As the third-quarter earnings season approaches, precious metals miners are expected to face difficulties meeting market expectations. Uncertainty looms over their ability to achieve full-year guidance as well. However, there is some good news, as operations are projected to improve in the coming quarter due to a lower cost base. This presents an opportunity for savvy investors to potentially find a hidden gem at an affordable price.
Key Points to Monitor
Guidance Revisions: According to analysts at RBC Capital Markets, several senior metals producers are falling behind their annual targets. With three-quarters of the year already complete, there is an increased risk of guidance revisions across the sector. For instance, South African gold miner AngloGold Ashanti is anticipated to miss its full-year cost guidance, and the successful delivery of production goals relies heavily on a robust final quarter.
Decreasing Costs: During the second quarter, operating costs reached a high point for the sector, averaging close to $1,400 per ounce. This represented the peak in costs over at least two years. However, RBC analysts predict that costs in the third quarter will decrease by 3% compared to the previous three months. This reduction in costs is expected to offset the lower gold price, potentially resulting in reasonably stable margins for the period.
By keeping a close eye on guidance revisions and tracking cost developments, investors can navigate the upcoming reporting season more effectively. Despite the challenges faced by precious metals miners, strategic opportunities may arise for those who can identify potential bargains.
Gold Prices Impact Cash Generation
The recent decline in gold prices has continued into the third quarter, with prices now approximately $100 per ounce lower than the third-quarter average. This downward trend is expected to put pressure on the cash generation of precious metals miners. According to RBC, no senior producers or royalty companies are predicted to have an overwhelmingly positive performance in the upcoming quarter. The bank states that these trends will present additional headwinds for the gold equity sector in the near term.
Job Cuts in the Mining Sector
Reuters reported earlier this week that job cuts in platinum mining have become inevitable due to the falling prices of precious metals. South Africa’s largest mining sector employer, Sibanye-Stillwater, has made this announcement. Additionally, Duncan Wanblad, Chief Executive of Anglo American, stated on Thursday that mining companies are facing tough choices to reduce costs. The weak metals prices are expected to impact earnings for these companies. As a result, Anglo American revealed plans to cut corporate office jobs across its global operations.
Upcoming Reports and Updates
Several mining companies will be releasing their quarterly production reports and operating updates in the coming weeks. Hochschild Mining will report its quarterly production on Oct. 18, Centamin will publish its report on Oct. 19, Anglo American will release its production report on Oct. 24, and Fresnillo will publish its report on Oct. 25. Sibanye-Stillwater will issue an operating update on Nov. 2, and AngloGold Ashanti will release its results on Nov. 10. The release dates for Gold Fields and Endeavour Mining have not yet been announced.