The mining industry is housed within the broader Zacks Basic Materials sector. The Q4 earnings picture for this sector looks glum. Basic Materials is among the Zacks sectors that are expected to see the biggest decline in earnings in the fourth quarter. Overall earnings for the space are projected to fall 25.7% on 7.7% lower revenues, per the latest Earnings Trends report.
Mining companies’ fourth-quarter results are expected to reflect the benefits of higher prices and efforts to boost operating efficiency and reduce costs. We have handpicked a few mining companies, Eldorado Gold Corporation EGO, Hudbay Minerals Inc. HBM, Agnico Eagle Mines Limited AEM and Kinross Gold Corporation KGC, which are set to beat earnings estimates this earnings season.
How Have Things Shaped Up for These Companies?
Among precious metals, gold was a stand-out performer last year. Notably, 2023 was a banner year for the yellow metal, with prices hitting an all-time high in early December, surpassing $2,100 per ounce for the first time on expectations of U.S. monetary policy easing and a weak U.S. dollar. Prices were also supported by the Israel-Hamas conflict, which boosted the demand for safe-haven assets.
The bullion had a solid start to the fourth quarter on the back of strong safe-haven buying due to geopolitical tensions in Israel. Prices of the yellow metal eventually racked up a solid gain of roughly 11% for the December quarter. Notably, gold prices gained 15% in 2023 to close at $2,078 per ounce, the highest annual close on record, with demand from the central bank and heightened geopolitical risks being significant contributors to the annual performance, per the World Gold Council.
Meanwhile, copper had started 2023 on a strong note, fueled by investor expectations of a surge in demand after the reopening of China’s economy from COVID-led restrictions. However, softer demand from China and global economic concerns weighed on prices of the major industrial metal during the second quarter.
Copper started the third quarter on a positive note amid expectations that demand in China will improve, backed by stimulus measures from the government, but closed the quarter lower on worries over the country’s real estate sector. However, prices of the red metal moved higher in the fourth quarter and hit a three-month high in early December on supply disruptions (partly due to the Panama copper mine closure), better-than-expected data from China, a weaker dollar and prospects of interest rate cuts. Copper maintained the momentum through December and ended the year on a high note amid concerns over supply constraints.
Higher prices are expected to have supported the performances of miners in the fourth quarter. On the flip side, higher mining costs, triggered by inflationary pressure on all aspects of input costs, particularly labor, fuel and electricity, are likely to have been a drag. Nevertheless, miners remain committed to whittling down operational costs and capital spending, improving operating efficiency within existing mines, paying down debt, eliminating non-core assets and concentrating on their highest ore-grade assets. Some of these companies have also taken steps to bring down their all-in sustaining costs — the most important cost metric of miners. These actions are expected to support their margins in Q4.
How to Pick Winners?
Given the large number of players operating in the mining space, picking the right stocks is apparently not an easy task. But our proprietary methodology makes it fairly simple. One can trim the list with the combination of a favorable Zacks Rank — Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — and a positive Zacks Earnings ESP. You can uncover the best stocks to buy or sell before they report with our Earnings ESP Filter.
Earnings ESP — the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate — is our proprietary methodology for determining stocks that have high chances of delivering earnings surprises in their next announcements. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as much as 70%.
Our Choices
Below we list four mining stocks that have the right combination of elements to pull off positive surprises this earnings season:
Eldorado Gold has an Earnings ESP of +3.53% and carries a Zacks Rank #2. The company is expected to report on Feb 22.
Eldorado Gold surpassed the Zacks Consensus Estimate in each of the trailing four quarters, at an average of roughly 495.9%. The Zacks Consensus Estimate for EGO’s fourth-quarter earnings is pegged at 21 cents. The company’s performance is expected to have been aided by strong gold production across the Lamaque Complex, Kisladag and Efemcukuru. It recently reported record fourth-quarter preliminary production from the Lamaque Complex on higher grade and mill throughput. Production also increased at Kisladag benefiting from the improved material handling systems. Record throughput rates were also registered at Efemcukuru in the fourth quarter.
Hudbay Minerals has an Earnings ESP of +16.26% and a Zacks Rank #3. It is slated to report on Feb 23. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for fourth-quarter earnings for HBM stands at 16 cents. The company is expected to have benefited from continued strong performance in its Peru operations on higher grades at the Pampacancha pit, leading to increased copper and gold production. HBM is also likely to have witnessed continued improvement in Peru’s cash cost per pound of copper in the fourth quarter. Production at Manitoba operations is also expected to have been driven by the mining of higher gold and copper grade zones at Lalor.
Agnico Eagle has an Earnings ESP of +6.14% and carries a Zacks Rank #3. It is slated to report on Feb 15.
Agnico Eagle surpassed the Zacks Consensus Estimate in each of the trailing four quarters, at an average of roughly 9.9%. The Zacks Consensus Estimate for fourth-quarter earnings stands at 46 cents. AEM’s fourth-quarter results are likely to have been supported by higher realized gold prices. Its gold production is expected to have been driven by the production from the acquisition of the remaining 50% of the Canadian Malartic complex.
Kinross Gold has an Earnings ESP of +13.51% and a Zacks Rank #3. It is slated to report on Feb 14.
Kinross surpassed the Zacks Consensus Estimate in each of the trailing four quarters, at an average of roughly 40.9%. The Zacks Consensus Estimate for fourth-quarter earnings stands at 9 cents. KGC is expected to have gained from higher average realized gold prices. Tasiast and La Coipa mines are expected to have continued their strong production performance, offsetting lower expected production from Paracatu due to mine sequencing.
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