Will These Gold Stocks Shine This Earnings Season?

Masam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Some people say that earnings releases are mostly uneventful events given that most of the companies have already announced their production forecasts before the earnings release date. However, what these people tend to forget is that some of these stocks are also highly levered to gold prices. Therefore, I have picked three stocks which explain both sides of the picture.

Franco Nevada (NYSE: FNV)

The Street forecasts mineral royalties of $105.2 million and Oil & Gas royalties of $19.3 million.

With quarterly average gold prices higher than Q3; I expect a stronger quarter of earnings out of FNV.

However, earnings are largely a non-event for FNV, as the Street expects exploration updates, acquisitions and project advancements (Cobre Panama) to drive the story. FNV’s valuation premium relative to producers is expected to remain robust as investors look to obtain leverage to gold with reduced exposure to cost inflation. However, the Street sees the potential scaling back or deferral of projects (from producer capital review programs) as a concern for FNV.

The company is expected to report on March 21.

Goldcorp (NYSE: GG)

Goldcorp previously reported Q4 production of 696.7koz. Total cash costs were guided for 2012 to be $645/oz on a co-product basis (implying $650/oz in Q4) and $315/oz on a by-product basis (implying $407/oz in Q4)

Goldcorp's sales could be higher than the Street’s estimate as there were 38k dry metric tons of unsold concentrate at Alumbrera in Q3 expected to be shipped in Q4.

With Goldcorp's 2012 production, 2013 guidance and revised 5-year plan already out on January 7th, earnings announcement is expected to be uneventful.

The key question on investors' minds in the wake of Goldcorp's announcement of 2013's 2.55-2.8Mozs guidance range (previously 3.2Mozs) was whether the company was being too conservative. I think guidance is reasonable, with downside risk at MW (Musselwhite), PCP (Porcupine) and PV (Pueblo Viejo). Penasquito is appropriate given the grade and water challenges. Credit Suisse sees upside at Wharf and El Sauzal which continue to beat modest expectations. Combined, a 2.65-2.70Mozs range looks to be the most likely scenario.

Credit Suisse’s $41 of target price and Neutral rating remain near the low end of the street. The company is expected to report on Feb. 14. The Street expects the company to make an EPS of 54 cents and revenue of $1.56 billion for the quarter.

Golden Star (NYSEMKT: GSS)

Golden Star previously reported Q4 production of 92.6koz gold. The cash operating costs were not reported. The Street estimate is $1,239/oz.

Golden Star pre-reported production. My view on the company remains that the next twelve months are not the time to step in. Golden Star is the most highly levered name to the gold price among the gold players, and despite 2012 gold prices averaging $1,665/oz, the company had Free Cash Flow of <$2M in the first nine months of 2012 (with no spending on major growth projects).

2013 is looking like another thin margin year with guidance for $1,050-$1,150/oz cash operating costs (before the ~$85/oz royalty and $336/oz in capex). Liquidity concerns can surface at lower gold prices, as the company's cash balance was $73M at year end and it had ~$117M in debt outstanding at Q3 end (excluding the ~$50M in convertible debt repaid in Nov.).

Despite the headwinds, some reasons for becoming slightly more constructive are emerging, including; (i) a new CEO with the opportunity to implement a turn-around plan;

(ii) the company's head-office moved to Toronto, which will give it better access to capital markets; and

(iii) strong drill results at Wassa, which  should significantly increase reserves and resources at that asset.

Foolish Bottom-Line

Overall, the gold prices saw a gain of 4% in the last quarter on a sequential basis. Let’s see if this fact brings any surprises to investors in the ongoing earnings season.


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