Credit Suisse Expects Gold Miners to Disappoint

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.

Comments

[Bill Herbert:]

Sorry to say, but Anita Soni has distinguished herself as an especially poor analyst of PM stocks over the past year.

I'm really surprised that CSFB can't find better talent these days, especailly considering the massive layoffs all over the Street.

2008 Oct 30 09:32 AM

[GUS100CORRINA:]

Regarding Yamana, I came to this conclusion several weeks ago ... my numbers indicate that earnings will come in somewhere between $0.25 AND $0.30 per share whiich would include the FX and Copper Hedge on AUY's hedge book. Based on this fact, AUY looks like for P/E will end up in the 4-5 range ... unbelievable.

2008 Oct 30 12:50 PM

[twitee:]

CEO and high ranking members of AUY have been taking all the profits by paying themself the large salaries......

2008 Oct 30 04:14 PM

[Ames Tiedeman:]

The Fed is surely creating future inflation that we will all feel in the coming years. One would expect Gold to go up much further. AUY looks attractive at under $5.00.

2008 Nov 02 08:31 PM