October 28, 2008 / 7:58 PM / 9 years ago

PREVIEW-Strong gold prices to pad Q3 mining earnings

(In U.S. dollars, unless noted)

* Quarterly earnings to benefit from higher gold prices

* Producers with base metal byproducts to suffer

* Costs seen higher in Q3, then easing

By Cameron French

TORONTO, Oct 28 (Reuters) - Canadian gold producers will report mostly stronger third-quarter profits on the back of higher year-over-year gold prices, although gold miners with base metals byproducts will suffer from the plunge in those prices, analysts say.

Despite its recent slide to 12-month lows, gold was stronger on average in the third quarter compared with the year-before period, and so should continue to drive revenues higher.

However, weaker results are expected from producers with substantial production of base metals such as Agnico-Eagle Mines (AEM.TO). Agnico will kick off the earnings parade on Wednesday.

“For guys like Agnico-Eagle, the base metals actually pay for the costs (producing) gold, so with the lower prices, it’s going to impinge on that,” said John Ing, president of Toronto investment dealer Maison Placements.

Agnico -- which mines zinc and copper as byproducts -- is seen reporting a profit of 9 cents a share, down from 27 cents a share a year earlier, when copper prices were nearly double their current level, and zinc prices were more than twice as high as they are now.

Other producers that have benefited from high base metals prices in the past include Yamana Gold (YRI.TO), whose earnings per share is expected to fall to 12 cents from 20 cents, and Goldcorp (G.TO), whose per-share profit is seen rising to 15 cents from 12 cents, according to Reuters estimates.

Meanwhile, top gold miner Barrick Gold (ABX.TO) is expected to show profit of 49 cents a share, up from 39 cents a share in the year-before period, while Kinross Gold’s (K.TO) EPS is expected to double to 14 cents from 7 cents.

Production costs, which have inflated sharply in recent years, will also be watched closely, particularly as prices of key inputs such as oil and steel have fallen over the last few months.

However, costs should still be higher year-on-year in the third quarter, and the practice of securing supplies with long-term contracts could delay any benefit from declining costs, analysts say.

LOOKING AHEAD

Indeed, with the price of gold, oil, and other metals having plunged in the early weeks of the fourth quarter, the third-quarter results may not hold much significance for investors.

“I think probably the really big issues aren’t going to be in the third quarter. The big issues are going to be the quarter we’re currently sitting in,” said Barry Allan, an analyst at Research Capital in Toronto.

The steepening drop of commodity prices has prompted several base metals producers to announce mine closures and project delays.

While the drop in gold has not been as devastating -- the metal was at $746 an ounce on Tuesday, down from its peak in March of just over $1,000 an ounce -- Allan said the market will be wanting to get some sense of the rapidly changing economics of the sector.

“I suspect you’re going to see some discussion of guidance going forward,” he said.

“But given the uncertainty that’s out there right now, (companies) are probably just going to highlight what they might be most exposed to negatively or positively, rather than putting some hard numbers on it.” (Reporting by Cameron French; Editing by Peter Galloway)

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