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Which Gold Miners Could Beat Earnings Estimates in 3Q16?

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Upside from 2Q16

Analysts’ earnings expectations are important to monitor. In this article, we’ll talk about analysts’ earnings estimates for gold miners as well as the probable reasons behind these estimates.

While analysts are expecting a revenue rise of 11% quarter-over-quarter for Barrick Gold (ABX) in 3Q16, the expected rise in its EBITDA (earnings before interest, tax, depreciation, and amortization) is higher at 22%, mainly because precious metals prices (GLD) (SLV) stayed high in 3Q16. Prices’ remaining high resulted in expanded margins, as costs have remained more or less constant. Barrick Gold’s EBITDA margin forecast for 3Q16 is 50%, compared to 45% in 2Q16.

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Kinross and Agnico Eagle

As we learned in the previous article, analysts are estimating higher revenues for Kinross Gold (KGC) in 3Q16, mainly due to higher production from its acquired mines and higher gold prices. In addition, the costs for these mines are lower than Kinross’s average costs.

Kinross is also guiding for lower 2016 costs on the back of falling manpower costs and the lower Canadian dollar. These developments underpin analysts’ expectation of an EBITDA margin of 40% in 3Q16, compared to 32% in 2Q16.

By comparison, the 3Q16 EBITDA estimate for Agnico Eagle Mines (AEM) is $247 million, implying a margin of 44%, higher than AEM’s 41% margin in 2Q16.

A fall in margins

Newmont Mining’s (NEM) EBITDA estimate implies an EBITDA margin of 39% for 3Q16, the same as it was in 2Q16. Newmont further reduced its cost guidance for 2016 in its 2Q16 results. This reduction could result in upsides to analysts’ estimates in 3Q16 and 4Q16.

Goldcorp (GG) is expected to report significantly higher revenue in 3Q16 compared to 2Q16. Its costs could also trend lower as a result. This could be the reason for analysts’ EBITDA margin estimate of 42% for GG in 3Q16, compared to just 28% in 2Q16.

Analysts are expecting a rise in Yamana Gold’s (AUY) EBITDA margin in 3Q16 compared to 2Q16. They’re forecasting a margin of 37% in 3Q16, compared to 32% in 2Q16. The EBITDA estimate for AUY in 3Q16 is $188 million.

Yamana’s management has said that its operating costs are expected to normalize in 2H16. Its operating efficiency initiatives are expected to bear fruit in the second half of the year.

Next, let’s discuss free cash flow expectations.

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