Profit Bonanza for North American Gold Miners

Source: Reuters, Euan Rocha  (7/22/10)

"All major NA gold producers expected to outpace year-ago results"


North American gold miners are expected to report bumper second-quarter profits in coming weeks on the back of record-high bullion prices; but weakening prices for base metals that are produced as byproducts could temper the gains.

Gold, which rose to a record high of more than $1,260 an ounce in June, averaged nearly $1,200/oz. in the quarter—up about 8% from the previous quarter and nearly 30% above year-earlier levels.

With many gold producers in the process of starting production at new mines, or ramping up output at existing projects, analysts see the strong bullion price as a big driver in the current quarter and beyond. All major North American gold producers are expected to outpace results from a year earlier.

That said, declines in the prices of byproduct metals like copper and zinc, along with the impact of slightly higher mining costs, could chip away at some of the gains.

"Shareholders are going to be looking for gold companies to achieve the higher profits that they have promised, because they no longer have the excuse of the gold price not outpacing cost inflation," said Dahlman Rose analyst Adam Graf.

However, it is a common mistake to assume that the higher gold price will automatically translate into higher profits, as taxes and royalties would also rise along with higher revenue, Graf said.

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