What Could Lead to Earnings Revisions for Gold Miners?



Earnings revisions

While share prices for gold miners have started anticipating higher gold prices, the same can’t be said for analyst estimates for these companies. As analysts get comfortable with the higher gold price environment, we could see earnings revisions on the upside in the next few months.

Both earnings and margins should rise with increasing gold prices and miners’ continued focus on lowering costs wherever possible. Investors should note, however, that Fed rate hike expectations are still the single most important variable impacting gold prices (GLD). A more hawkish Fed stance could lead to a short-to-medium-term downside for gold prices.

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Revenue estimates

Analysts are estimating a 6% decline in revenues YoY (year-over-year) for Barrick Gold (ABX) in 2016. This is mainly due to its lower production due to asset sales. Its production profile is also in decline for 2018 and onward, which explains the lower revenue estimates. Goldcorp’s revenue estimates also imply a decline of 10% YoY in 2016. This is mainly due to the company’s guidance cut for production.

Analysts expect Yamana Gold’s (AUY) revenues to increase by 7%, 10%, and 9%, in 2016, 2017, and 2018, respectively. While Kinross Gold’s (KGC) revenues are estimated to increase by 15% in 2016, the company is projected to see a 2017 and 2018 decline of 1% and 4%, respectively. Kinross’s recent acquisitions have improved the production profile in 2016, but its organic growth will be weak until the Tasiast Expansion project comes online.

EBITDA margin forecasts

EBITDA (earnings before interest, tax, depreciation, and amortization) margin forecasts are higher for 2016 compared to 2015 across the board. This is due to higher gold price estimates for 2016. Margin estimates for Barrick are the highest among senior gold miners due to its lower cash costs since the company has one of the best assets in the industry.

Barrick Gold’s estimated EBITDA margin for 2016 is 46.4%, followed by Goldcorp with a margin estimate of 41.1%. Yamana has an EBITDA margin estimate of 40.1%, and Newmont Mining (NEM) has an estimate of 40.6%. Kinross has the lowest margin estimate of 35.3% due to its higher costs.


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