It has been a haunting Halloween for gold as prices took a beating closing at a four-year low of $1,161 on Oct 31. This was triggered by the Federal Reserve's announcement that it would end its QE3 bond buying program, surge in equities, further fall in the crude oil price and new stimulus measures by the Bank of Japan.
Earlier in the third quarter, gold prices bore the brunt of a stronger greenback, which put an abrupt end to the upward trend enjoyed by the yellow metal in the first half of the year stoked by geopolitical tensions. As the third-quarter results of the gold miners trickle in, it does not come as a surprise that lower gold prices have translated into weaker earnings results.
Gold resumed its downhill journey in October as positive jobs report from the Bureau of Labor Statistics sent gold reeling below $1,200 per ounce to $1,192 per ounce on Oct 3, a level last seen in Jun 2013. With the dollar gaining on speculation that the Federal Reserve would raise interest rates sooner than expected, gold prices were pushed in the opposite direction.
However, gold spiked to a one-month high on Oct 15 on the back of a huge sell-off in equity markets following the release of three major disappointing US data. U.S. retail sales fell 0.3% last month, signaling some caution on the part of consumers. The producer price index was down 0.1% — the first decline in more than a year.
Additionally, reading for the Empire State Manufacturing Survey skydived to a reading of 6.2 in October from a robust 27.5 in September, signaling that business activity is slowing down for New York manufacturers.
Moreover, weak economic reports from the European Union, particularly its leading economy Germany, raised concerns about global growth and increased volatility in the markets, helping the cause of gold. China's consumer inflation slowed, more than expected, to 1.6 in September — a near five-year low, another sign of weakness in the world’s second-largest economy.
Gold somewhat regained its ground, growing stealthily amid global growth worries which sparked safe-haven bids. The International Monetary Fund cut its global economic growth forecasts cautioning weaker growth in core euro zone countries, Japan and big emerging markets like Brazil. Demand in India perked up, thanks to festive buying during Diwali, the country’s biggest gold-buying occasion of the year. Gold imports in India increased more than four-fold on expectations that declining prices would boost festival demand.
However, in the last week of October, gold prices dealt a severe blow, with the US Federal Reserve announcing the end of its economic stimulus program and striking an upbeat tone on the state of the US economy. The Fed signaled a more hawkish stance toward interest rates, explicitly stating that rates could be hiked earlier than currently anticipated.
Moreover, Japan's unexpected announcement of fresh stimulus that weakened the yen also pushed gold over the edge. In addition, decline in the price of oil to below $80 a barrel and its effect on inflation has been another nail in the coffin for gold.
Gold prices are expected to drop further, which would mark its greatest decline since Sep 2013. The yellow metal is also on track for its first consecutive monthly loss this year. Analysts are estimating that gold price is heading for $1,050 by the end of the year.
We highlight three gold-mining stocks that have delivered disappointing earnings results and negative earnings surprise this earnings season. Following the results and in tandem with the gold prices at four year lows, these companies have also witnessed significant downward price movements in the past week and also hit their 52 week lows.
Goldcorp Inc. (GG)
Headquartered in Vancouver, Canada, Goldcorp is a leading gold producer engaged in gold mining and related activities including exploration, extraction, processing and reclamation. Goldcorp has its operations in Canada, the U.S., Mexico and Central and South America.
Goldcorp currently carries a Zacks Rank #3 (Hold). Goldcorp's price dipped 14% in a day following the earnings announcement on Oct 30, as production lagged expectations. The stock is down nearly 13% since the earnings release based on last Friday's close. Its shares plunged to a 52 week low of $17.01 on Oct 31, eventually closing higher at $18.78. The stock has delivered a negative year-to-date return of 26.24%.
Goldcorp’s third-quarter 2014 adjusted earnings plunged 61% to 9 cents per share year over year, way short of the Zacks Consensus Estimate of 18 cents, a negative earnings surprise of 50%. Operating weakness at Penasquito mine, as Goldcorp processed more lower-grade stockpile material, and lower production at Los Filos, as a result of a slower ramp-up of production following suspension of mining activities in the second quarter, along with lower gold prices affected earnings in the quarter.
The company also holds a negative earnings growth estimate of 0.77% for the fourth quarter of 2014. Moreover, the Zacks Consensus estimate has undergone negative revisions over the past 7 days. Goldcorp is currently trading at a P/E of 22.61, at a premium to the industry average of 21.61.
Yamana Gold, Inc. (AUY)
Headquartered in Toronto, Canada, Yamana Gold Inc. is engaged in gold mining and related activities, including exploration, extraction, processing, and reclamation. The company has precious metal properties and land positions throughout the Americas, including in Brazil, Chile, Argentina, and Mexico. Its portfolio includes seven operating gold mines.
Yamana Gold currently carries a Zacks Rank #3 (Hold). Shares of Yamana Gold dipped 17% in a day following its third-quarter earnings on Oct 29. Its shares plunged to a 52 week low of $3.80 on Oct 31. Since the earnings results, Yamana Gold shares have lost 26% of its value.
Yamana Gold reported an adjusted loss per share of 1 cent compared with earnings per share of 9 cents in the year-ago quarter. Results fell short of the Zacks Consensus Estimate of 5 cents, a negative earnings surprise of 120%. The third-quarter loss was due to impairment charges for Brazilian mines and charges related to newly enacted Chilean tax changes.
The Zacks Consensus Estimate for the company for the fourth quarter of 2014 reflects a negative earnings growth of 20%. Moreover, the Zacks Consensus estimate has undergone negative revisions over the past 7 days.
Yamana Gold is currently trading at a P/E of 23.69, at a premium to the industry average of 21.61. The stock has delivered a negative one-year return of 59.64%.
New Gold, Inc. (NGD)
Headquartered in Vancouver, Canada, New Gold is engaged in the acquisition, exploration, development, and operation of mineral properties. It primarily explores for gold, silver, and copper deposits.
New Gold currently carries a Zacks Rank #3 (Hold). Shares of New Gold dipped 9% in a day after it reported third-quarter earnings on Oct 30. Its shares have lost 14% of its value, based on Friday’s closing price. Shares of New Gold also hit a 52-week low of $3.52 on Friday. The stock has delivered a negative year-to-date return of 39.15%.
New Gold reported an adjusted earnings of 1 cent per share, down 75% year over year, Results fell a penny short of the Zacks Consensus Estimate, a negative earnings surprise of 50%.
The company holds a negative earnings growth estimate of 12.5% for the fourth quarter of 2014. The Zacks Consensus estimate has undergone negative revisions over the past 7 days.
Bottom Line
Exiting certain underperformers at the right time helps maximize portfolio returns. With the expected drop in gold prices and negative earnings growth projected for these stocks, we believe it will be a prudent move to get rid of these stocks at the moment. Moreover, these stocks are expensive than their peers despite delivering negative year-to-date returns.
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