The third quarter earnings season kicks off Wednesday for large-cap gold companies, and Credit Suisse analyst Anita Soni suggests the stocks are now "poised to disappoint" in a difficult market environment.
"We expect earnings, production or cost misses will be viewed unforgivingly in the current environment of extreme aversion to operational risk," she wrote in a note to clients.
Unfortunately, she expects most of the companies she covers will report disappointing earnings. One reason is that base metal byproducts are no longer the gift that they used to be.
The plunging prices of copper and zinc will hit many of the gold companies, most notably Agnico-Eagle Mines Ltd. (AEM). Ms. Soni figures that Agnico is the most likely company to miss consensus earnings per share estimates given the 16% drop in the zinc price.
On the positive side, Goldcorp Inc. (GG), Yamana Gold Inc. (AUY) and Northgate Minerals Corp. (NXG) will benefit from copper hedges. Yamana in particular is in a good position after hedging all of its 2008 copper production at about US$3.00 a pound.
Ms. Soni expects only four of the 12 companies in Credit Suisse's coverage universe to beat the consensus earnings per share estimates: Northgate, Kinross Gold Corp. (KGC), Alamos Gold Inc. (AGIGF.PK), and Gammon Gold Inc. (GRS).
Third quarter earnings are likely to be lower than the second quarter because of weaker gold and base metal prices. But the gold price is still up 28% year-over-year, Ms. Soni noted.