Strong Earnings from Gold Miners: Is it Time to Buy?

Second-quarter earnings season is in full gear. And the results, so far, are terrific.

With almost 60% of the companies in the S&P 500 reporting, earnings growth now stands at 10.5% for the quarter, with sales growing at a 6% rate.

And the gold miners are no exception.

Some of the largest miners have reported blowout numbers. In fact, on average, senior gold miners have beaten expectations by over 60% so far this reporting season. 

Take a look for yourself. Last week:

• Agnico Eagle Mines Ltd. (AEM) — reported earnings-per-share of 24 cents, beating expectations by more than 55%.
• Barrick Gold Corp. (ABX) — reported earnings-per-share of 22 cents, beating expectations by 32.5%.
• Newmont Mining Corp. (NEM) — reported earnings-per-share of 46 cents, blowing away expectations by almost 77%.
• Goldcorp Inc. (GG) — reported earnings-per-share of 16 cents, crushing expectations by 72%.

These blowout numbers are driven by optimization programs that are finally starting to deliver bottom-line results. Mining companies have been forced to slash their spending after the five-year rout in gold prices that began in 2011. Gold miners are now focusing instead on cutting debt and making their operations more efficient.

You can see that costs are falling, which is improving the bottom line …

• Agnico Eagle — All-in sustaining costs fell to $785-an-ounce from $848. That’s a 7.4% reduction in costs.
• Barrick Gold — All-in sustaining costs fell almost 10% to $710-an-ounce from $782 a year earlier.
• Newmont Mining — All-in sustaining costs fell to $884 from $913.
• Goldcorp — All-in sustaining costs fell by more than $250, to $800-an-ounce, from $1,067.

Now that gold prices have stabilized, after bottoming in late 2015, miners have also been working to expand production internally — or, find new assets — while still keeping costs in check.

So after delivering blockbuster results this quarter, is it time to load up on gold miners?

Not quite yet.

The operational efficiencies and bottom-line results are certainly making gold miners a lot more attractive. But the Edelson Institute cycle forecasts on the miners are still pointing to some volatility ahead. Just take a look:

And we are already seeing some of that volatility in recent months. After selling off for most of June and into the early part of this month, gold- and silver-mining stocks have now traded higher in 12 of the last 15 trading days.

The bottom line: Gold and silver miners are showing signs of a nice turnaround, with increasing output and lower costs. In fact, we are inching closer to the “back up the truck” opportunity. I believe gold miners are poised to break out of their recent doldrums.

But we have to wait for just the right moment. When that time comes, my subscribers will be the first to know.

Good investing,

Mike Burnick