The first quarter was not a great one for the mining sector, as companies suffered from low commodity prices and wrote some nonsense off their balance sheets that they didn't get to last year. But analysts are confident that the Q2 earnings season, which starts next week, will be an improvement.
The base metals sector should post a "significant" earnings improvement due to higher prices and positive provisional pricing adjustments, according to Genuity Capital Markets analysts Tony Lesiak, Nawojka Wachoviak, and Michael Gray. They also expect the precious metals companies to demonstrate positive earnings momentum due to higher prices and expected production growth.
More specifically, they believe that Inmet Mining Corp. (IEMMF.PK), Yamana Gold Inc. (AUY), and Barrick Gold Corp. (ABX) could all surprise on the upside, while First Quantum Minerals Ltd. (FQVLF.PK) and Gammon Gold Inc. (GRS) could disappoint the market.
On the other hand, RBC Capital Markets analysts Fraser Phillips and Adam Schatzker think that First Quantum is a company that could outperform expectations. They also think a positive surprise from Sherritt International Corp. (SHERF.PK) is possible, while Brazilian giant Vale SA (VALE) is cited for a potential earnings disappointment.
In a note to clients, the RBC analysts noted that they remain cautious on the base metals, since the strong performance in Q2 was largely due to Chinese buying, and a correction is entirely possible. The Genuity analysts wrote that the base metals have been "surprisingly resilient," but still prefer gold stocks in the short term.